Governments engage in bilateral deals with interest groups to win policy contests

Alastair Langtry, PhD economics researcher at the University of Cambridge, “Inside the West Wing: Lobbying as a contest,” Journal of Public Economics: Volume 231, March 2024, 105068 https://www.sciencedirect.com/science/article/pii/S0047272724000045

This paper puts conflicts and power at the centre of the lobbying process to shed light on how a government spends political capital and sells special treatment. It considers a world where the government makes many different policy decisions and has limited resources. We find that when a government cannot do deals with special interest groups, it adopts a scattergun approach and spreads its political capital across all contests. In stark contrast, a government that can do deals will pick its battles carefully. It will only fight where it can win and will do a deal in all other cases. This mechanism can explain why even weak governments do not appear to lose legislative battles very often. They find it better to not fight at all and gain what they can from cutting a deal. Weak governments fight less, rather than less successfully. It also highlights the important role that backroom deals can play in the wider political landscape. Bilateral deals have indirect impacts on other interest groups, by putting the government in a better position to win other contests. Our model also highlights a tension between efficiency and equal treatment. This is because it shows how the special treatment given to certain interest groups can be part of a bigger picture that improves overall outcomes for the government and society, even if individual deals in isolation harm society. So rules or social norms that seek to prevent the government giving special treatment to some groups may not always be optimal. More nuanced rules, allowing special treatment but preventing members of the government from using contributions to enrich themselves, might be better. The welfare implications of having the government do deals depends on the harmfulness of bad laws. When they are sufficiently harmful, the government will only do deals in order to help win other contests. In this case, allowing deals unambiguously improves welfare. However, when bad laws are less harmful, the government may do deals to build up its stock of political capital beyond the level needed to win contests. This excessive build-up of political capital can reduce welfare. The key contribution is to show how allowing the government to do deals with special interest groups has an important impact on behaviour and outcomes. It shows that, rather than behaving in a scattergun manner, the government picks its battles carefully. It only fights where it can win.