Political Contributions

Abstract

Interest groups can in°uence political decisions in two distinct ways: by o®ering contributions to political actors and by providing them with relevant information that is favorable for the group. We analyze the conditions under which interest groups are more inclined to use one or the other channel of in°uence. First, we identify an indirect cost of searching for information in the form of an information externality that increases the cost of o®ering contributions. We then show that an extreme interest group might ¯nd it bene¯cial to abandon information provision altogether and instead seek in°uence solely via contributions. Finally, we apply our model to cast doubt on the \conventional wisdom " that competition among information providers increases the amount of information provided: when the identi¯ed information externality is taken into account, we show that competition decreases information search. Thus, our analysis lends support to a rather cynical view of lobbying wherein lobby groups provide little or no useful information to the political process.