4 Nov 2009

More on Lobbying and Rent-Seeking

Many people have watched the video of all-pay auctions that I used to show students how political lobbying works. This post explains what's going on.

Here are two more comments:
  1. All-pay-auctions do not recreate the dynamics of one-sided lobbying, where one special interest group (e.g., sugar producers, auto makers, wall street) bribes politicians to transfer taxpayer wealth to them. All-pay-auctions are more like the competition between groups to influence politicians, e.g., various groups trying to get "their" version of legislation affecting the Sacramento Delta or doctors, insurance companies and pharma trying to affect healthcare legislation.

  2. In 2006, Russ Roberts and Mike Munger discussed all-pay-auctions, public choice, rent-seeking and lobbying. (They even get into Mancur Olson's Logic of Collective Action!) Listen to it.
Bottom Line: Politicians benefit from working on problems, not solving them.


Eric said...

I am still a little confused with respect to all-pay and politics.

If 4 lobbying groups spend a total of $1,000,000 to get the legislation to go their way and the legislation nets $4,000,000,000 to the winning group (the standard ante and reward) is this really all pay auction since the auctioned item was purchased at far below its market price?

Josh said...

Your bottom line was brilliant.

David Zetland said...

@Eric -- you are missing the dynamics. If there's $4 mil at stake, then each bidder s/b willing to bid (bribe) $3,999,999. Take that times 4 and calculate losses. OTOH, if you are merging 4 groups into a cartel, then you avoid that competition, which I mentioned in point (1).

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