Baron (2001) - Theories of Strategic Nonmarket Participation

• This page is part of a series under PHDBA279A

Reference(s)

Source:

• Baron, D. (2001), Theories of Strategic Nonmarket Participation: Majority-Rule and Executive Institutions, Journal of Economics and Management Strategy 10, 7-45. pdf
• Baron, D. (1999), Theories of Strategic Nonmarket Participation: Majority-Rule and Executive Institutions, Working Paper pdf

Uses:

• Grossman, G. and E. Helpman (1994), Protection for Sale, American Economic Review 84, 833-50. pdf

Introduction

Baron (2001) provides some theoretical foundations for client politics and interest group politics in both Majority Rule institutions and executive institutions. The paper focuses on complete information settings and does not explicitly consider re-election, though it is noted that contributions are likely to be used to this end.

The models considered are:

1. Vote recruitment in client politics (with majority rule institutions)
   1. Extension to supermajority rule
   2. Extension to bicameral legislatures
   3. Extension to presidential veto
2. Agenda setting strategies and vote recruitment in client politics
   1. Extension to consider uncertainty over the location of ideal points
   2. Extension to consider uncertainty over the intensity of preferences
3. Analysis of Bargaining Power in interest group politics
4. Analysis of incentive to undertake nonmarket strategies in client/interest group politics
5. Forming coalitions for vote recruitment in client politics (cost sharing)
6. Rent chain mobilization in client politics
7. Interest group competition with an executive institution
8. Interest group competition in a majority rule institution
   1. Vote Recruitment
   2. Agenda Setting

Basic Definitions

• In Client politics the firm or interest group has no direct competition in its lobbying or influencing efforts.
• In Interest group politics one or more firms directly compete in their efforts to influence policy (note that client politics is a subset of interest group politics, but we will use the term interest group politics to discuss the case of multiple lobbyists).
• Majority Rule institutions are legislatures or similar bodies that who require a majority vote to pass legislation. Thus Majority Rule institutions are synonymous with median vote type problems.
• Executive institutions are those in which a single individual, or a group of individuals that hare identical preference and so can be represented by a single representative agent, are empowered to choose and enact policy.

Majority Rule Institutions

Key to the analysis of Majority Rule institutions is the notion of pivotal legislators, and the trade-off between costs and benefits for the lobbyist(s). Building a majority is inherently costly, and so majority building naturally focuses on the legislators who are easiest to recruit. Legislators who would vote to support a policy absent of lobbying efforts are not provided with additional (costly) resources.

Interest Group Politics

How competition among interest groups should be modelled (to reflect reality) depends four main factors: the sequence or simultaneity of offers, whether lobbyists can make more than one offer or not (i.e. the number of rounds), the nature of the offers (i.e. point or menu offers), and the number of offers accepted (generally one or all) . The bullets below give the appropriate model for some of these instances:

• Simultaneous, 1 round, point offers, 1 accepted: Colonel Blotto type games
• Sequential move, point offers, 1 accepted: Groseclose & Synder, Groseclose & Banks.
• Simultaneous, 1 round, 1 accepted, point offers: All pay auctions
• Simultaneous, 1 round, 1 accepted, menu offers: Common agency models, e.g. Grossman & Helpman (1994)

In the last case it should be stressed that resource offers by the principals are specified as a function of the decision my the agent.

Vote Recruitment in Client Politics

A slightly simplified version of the model used now follows.

Legislators have ideal points: [math]z \backsim U \left [ - \frac{1}{2},\frac{1}{2} \right ][/math] with the median legislator's ideal point denoted [math]\, z_m = 0[/math].

The utility function of legislators is additively-seperable with a term representing their constituent's preferences and a term for the resources provided to them by the client:

[math]\quad U \left( w , z \right ) = -\alpha(w-z) + r_w, \quad \alpha\gt 0[/math] where [math]\, \alpha[/math] represents the intensity of preferences.

The Interest seeks [math]x \gt 0,\quad x \ge y[/math] where [math]\, y[/math] is the status quo and the Agenda is [math]\, A=\{x,y\}[/math].

A necessary condition for nonmarket action is that [math]frac{(x+y)}{2} \gt z_m \,[/math]. We can also consider the indifferent voter [math]z_i[/math] and note that this votes will be inactive if [math]z_i \le z_m [/math] and active if [math]z_i \gt z_m[/math].

A legislator has an absolute-value policy plus resource contribution based utility function. That is a legislator will vote for [math]x[/math] over [math]y[/math] iif:

[math]-\alpha \|x-z\| + r_x \ge -\alpha \|y-z\| \quad[/math] - eq(1)

Note that a legislator votes on his (using male for the agent) induced preferences, not on whether they are pivotal. However, in equilibrium the pivotal votes are recruited.

The resources that must be provided to a legislator to swing his vote (essentially [math]U(y,z)-U(x,z)[/math]) are calculated according to equation (1) above for three different cases (locations of z).

Case 1: [math]z \le y: \quad r_x=\alpha (x-y)[/math] obtained by noting that [math]x \ge y[/math] and that both of the absolute values are positive and rearranging.

Case 2: [math]y \le z \le x: \quad r_x= 2 \alpha \left (\frac{x+y}{2} + z \right )[/math] obtained by noting that the lhs absolute value in equation (1) is positive, whereas the lhs value is negative.

Case 3: [math]x \le z: \quad r_x=-\alpha (x-y)[/math] obtained by noting that both of the absolute values are negative and rearranging.

For simplicity consider the case where [math]z_m \lt y \lt frac{x+y}{2} [/math]. Putting these points on a line divides the line into four regions. The resource provision required to make a legislator indifferent in each region is:

[math]z \in [-\infty,z_m] \quad r_x=0[/math] [math]z \in (z_m,y] \quad r_x=\alpha (x-y)[/math] [math]z \in (y,frac{x+y}{2}] \quad r_x=2 \alpha \left (\frac{x+y}{2} + z \right )[/math] [math]z \in (frac{x+y}{2},\infty] \quad r_x=0[/math]

Note that the legislators with ideal points [math]z_m \gt frac{x+y}{2}[/math] always vote for the interest's policy and there is no need to contribute resources to them. Likewise in it unnecessary to contribute to legislators below the median, at least if there is no uncertainty of types and a majority rule is in place (etc). Further more the resources needed are decreasing in [math]z[/math] for [math]z \in (z_m,frac{x+y}{2}][/math], so interests must provide more resources to more strongly opposed legislators, and are strictly increasing in [math]x[/math].

[math][/math]