Influence activities, coalitions, and uniform policies

This paper examines the effects of endogenous coalition formation in a setting where agents lobby a policy-maker. For example, financial firms lobby for weaker regulation to facilitate privately beneficial activities that impose welfare-decreasing externalities (e.g., systemic risk) on the financial system. Policy uniformity (e.g., one-size-fits-all rules) causes agents to free ride on each other’s lobbying and gives them an incentive to form lobbying coalitions. We show that the coalitions may be formed by similar or dissimilar agents. Additionally, endogenous coalition formation causes the effects of policy uniformity and lobbying costs on aggregate lobbying activity and policy strength to be non-monotonic. Finally, our model suggests that increased competition in the market for coalition-facilitating lobbyists leads to less lobbying.