Campaign Spending with O±ce-Seeking Politicians, Rational Voters, and Multiple Lobbies

I introduce a microfounded model of campaign ̄nance with o±ce-seeking politicians, a continuum of voters, and a large number of heterogeneous lobbies. Lobbies make contributions to politicians according to a common agency framework. Politicians use contributions to ̄nance their electoral expenditures. Voters are not fooled by electoral expenditures: they are in°uenced in a way that is consistent with the equilibrium behavior of lobbies and politicians. The model is used to: (i) determine the relation between campaign spending and political deadweight; (ii) show the informational value of lobbies' contributions; (iii) evaluate the welfare implications of restricting campaign spending; and (iv) interpret the empirical ̄nding that campaign expenditures have a very low e®ect on election outcome. One can say that this model makes the best case in favor of campaign contributions. Nevertheless, under reasonable parameter values, a ban on campaign contributions is welfare-improving. ¤I am grateful to Alex Cukierman, Gene Grossman, and Rebecca Morton for helpful discussions. yAddress: B923, Department of Econometrics, Tilburg University, Postbus 90153, 5000 LE Tilburg, The Netherlands; Email: [email protected].