The informational effects of competition and collusion in legislative politics

Abstract

We use a mechanism design approach to study the organization of interest groups in an informational model of lobbying. Interest groups in‡uence the legislature only by communicating private information on their preferences and not by means of monetary transfers. Interest groups have private information on their ideal points in a one-dimensional policy space and may either compete or adopt more collusive behaviors. Optimal policies result from a trade-o¤ between imposing rules which are non-responsive to the groups'preferences and ‡exibility that pleases groups better. Within a strong coalition, interest groups credibly share information which facilitates communication of their joint interests, helps screening by the legislature and induces ‡exible policies responsive to the groups' joint interests (an informativeness e¤ect). Competing interest groups better transmit information on their individual preferences (a screening e¤ect). The socially and privately optimal organization of lobbying favors competition between groups only when their preferences are not too congruent with those of the legislature. With more congruence, a strong coalition is preferred. Finally, within a weak coalition, interest groups must design incentive compatible collusive mechanisms to share information. Such weak coalitions are always ine¢ cient.Keywords: Communication Mechanisms, Lobbying, Competition, Coalition, Legislative Politics.JEL Classi…cation : D72; D82.1 We thank Jean-Jacques La¤ont, Michel Le Breton, Eric Maskin, Shlomo Weber, François Salanié, Wilfried Sand-Zantman and seminar participants in Toulouse, Stockholm and Madrid for helpful discussions. We are especially grateful to two referees and the editor of this journal for their insightful suggestions and comments.

Resource Allocation in the Brain

“…First, it is related to the research on mechanism design without transfers (see e.g., Holmström, 1977;Melumad and Shibano, 1991;Matouschek, 2007, 2008; Martimort and Semenov, 2008;Carrasco and Fuchs, 2009;Koessler and Martimort, 2012). While the absence of transfers typically requires justification in the literature on organizations, in our setting the neurobiology evidence suggests the lack of other means of 'compensation'.…”

Optimal delegation with multi-dimensional decisions

“…Alonso and Matouschek [1] applied the standard delegation model to a dynamic context where the principal and the agent interact repeatedly. Focusing on dominant strategy to get a sharp characterization of the set of incentive feasible allocations, Martimort and Semenov [40] extended this mechanism design approach to the case of multiple privatelyinformed agents (lobbyists) dealing with a single principal (a legislature) in a political economy context where the principal chooses a one-dimensional policy. 3 Farrell and Gibbons [21] and Goltsman and Pavlov [25] analyzed private and public mechanism with a single informed agent and two decision-makers.…”

Coordination and the provision of incentives to a common regulated firm

“…In Section 6, we consider the case in which the regulators choose payments independently, whereas, in Section 7, we consider the case 5 There is a myriad of other applications of common agency games with asymmetric information. Two of them are: Biais et al (2000), who analyze the competition of market makers in financial markets, and, recently, Martimort and Semenov (2008) who consider a model of interest group competition. 6 They show that equity financing (which demands high levels of monitoring) ensues when principals coordinate, whereas debt financing (which is associated with lower levels of monitoring) ensues when principals do not coordinate.…”