Campaign Advertising and Voter Welfare

This paper investigates the role of campaign advertising and the opportunity of legal restrictions on it. An electoral race is modeled as a signalling game with three classes of players: many voters, two candidates, and one interest group. The group has non-verifiable insider information on the candidates’ quality and, on the basis of this information, offers a contribution to each candidate in exchange for a favorable policy position. Candidates spend the contributions they receive on non-directly informative advertising. This paper shows that: (1) A separating equilibrium exists in which the group contributes to a candidate only if the insider information about that candidate is positive; (2) Although voters are fully rational, a ban on campaign advertising can be welfare-improving; and (3) Split contributions may arise in equilibrium (and, if they arise too often, they are detrimental to voters). ∗I would like to thank Alex Cukierman, Eric van Damme, Mathias Dewatripont, Hans Gersbach, Jan Potters, Luca Rigotti, Gérard Roland, Aldo Rustichini, Randolph Sloof, three anonymous referees and two editors, and a number of seminar participants. I am grateful to Michael Bailey, Walter Sorana, and especially John Ferejohn for their comments on an earlier version of the paper. †Address: STICERD, LSE, Houghton Street, London WC2A 2AE, UK. Email: [email protected]. Homepage: http://econ.lse.ac.uk/staff/prat.