Lobbying for Power: A Structural Model of Lobbying in the Energy Sector∗

Firms systematically lobby the U.S. Congress to in uence policy-making. To what extent do lobbying expenditures a ect the probability that a policy is enacted? What are the private returns from lobbying expenditures? To answer these questions, I construct a novel dataset comprised of federal energy legislation and lobbying activities by the energy sector during the 110th Congress (2007 2008). A unique feature of this dataset is that it focuses on speci c policy issues rather than entire pieces of legislation (bills). I develop and estimate a game-theoretic model where heterogeneous players choose lobbying expenditures to a ect the probability that a policy is enacted. I nd that the e ect of lobbying expenditures on a policy's equilibrium enactment probability is small. However, the average returns from lobbying expenditures are estimated to be large. As the estimated average value of a policy is quite large, even a small change in its enactment probability can lead to large returns. ∗I am greatly indebted to my advisor, Antonio Merlo, and my dissertation committee members, Kenneth I. Wolpin, Hanming Fang, and Flávio Cunha for their guidance, support, and insight. I have greatly bene ted from discussions with Xu Cheng, Camilo García-Jimeno, Áureo De Paula, Holger Sieg, Xun Tang, and Petra Todd. I thank the participants of the 2011 Asian Meeting of the Econometric Society, the 25th Annual Meeting of European Economic Association, the 10th World Congress of the Econometric Society, and Penn's Empirical Micro Seminar and Empirical Micro Lunch. I also thank John Chwat of Chwat & Company and the sta in the Center for Responsive Politics, especially Jihan Andoni. Lastly, I thank Douglas Hanley for computerizing policy identi cation and also thank Mahuhu Attenoukon, Audrey Boles, Eric Sun, Jennifer Sun, and Yi Yi for providing excellent research assistance for data collection. The research reported here was supported by the National Science Foundation through Grant SES-1023855. All errors are mine. †Department of Economics, University of Pennsylvania. E-mail: [email protected]