Empirics prove – individual contributions represent candidate quality and effect elections – their links about Big Tech fail

Spending is a vital part of U.S. elections, with the 2012 Congressional elections alone involving over $3.5 billion. With so much money involved a natural question that often comes up is how does this spending affect election results. The traditional way this question has been posed has involved the amount of money spent by each candidate but not where that money came from. Many candidates like to boast that they are running a grassroots campaign, with the implication being that they have the support of the people and therefore can expect to perform better in the election. If this is true then the source of campaign contributions could be an important factor. Because corporations do not have a vote, only contributions from individuals will represent votes during the election. Of course the fraction of voters who contribute to a candidate is relatively small and thus the actual vote share represented by donors may not have a significant effect on the election. However, the actions of donors should be reflective of the actions of voters as well. In this paper I examine whether the source of campaign contributions plays a role in determining the effect those contributions have on election results. I find that individual contributions have a greater impact than corporate contributions because they represent both money and votes whereas corporate contributions represent only money. I show that there are in fact two separate effects that occur related to campaign contributions. The first effect is the direct spending effects that is a result of increased spending leading to higher vote shares. However, there is also an indirect effect that is contained in individual contributions which involves the relationship between campaign contributions and candidate quality. In order to show why the source of a contribution would make a difference, I first propose a theoretical framework in which candidates of differing quality compete in an election. I show that unlike corporate contributions, individual contributions are a reflection of a candidate’s quality. Because candidates who are higher quality will attract more contributions, the very fact that a candidate receives a contribution is a reflection of that candidate being of higher quality and thus that candidate should be expected to perform better in the election. This means that individual contributions will lead to a direct spending effect as well as an indirect quality effect whereas corporate contributions will only lead to the direct spending effects. Therefore we should expect individual contributions to be more closely related to a candidate’s electoral success. I then attempt to test this theory using congressional election data from the past 30 years. Empirical estimation of election results is always complicated by problems of endogeneity, particularly with incumbent spending. If an incumbent is in a safe race they will tend to not spend as much as if they were in a close race, leading to an apparently negative relationship. This is a result of incumbent spending and election results being simultaneously determined which leads to biased estimates of the effect of incumbent spending. This is a well documented problem that unfortunately does not have an easy solution. I therefore proceed in two directions. I first look for evidence that the source of campaign contributions is indeed an important factor. I then attempt to estimate the effects of campaign contributions using three stage least squares to overcome the simultaneity problem. I find that individual contributions do have a significantly larger effect on election results than corporate contributions. I further show that this is very likely a result of a close relationship between individual contributions and candidate quality. I attempt to control for this relationship by including the number of individual donations made to each candidate. Even after controlling for the amount of contributions made to each candidate, the number of donations is highly significant, suggesting that the number of supporters a candidate has will in part predict how well the candidate will do in the election. This new measure gives a way of controlling for candidate quality in a way that is driven by the actions of voters.