Lobbying Legislatures

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Lobbying LegislaturesAuthor(s): Morten Bennedsen and Sven E. FeldmannSource: The Journal of Political Economy, Vol. 110, No. 4 (Aug., 2002), pp. 919-946Published by: The University of Chicago PressStable URL: http://www.jstor.org/stable/3078541

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LobbyingLegislatures

MortenBennedsenCopenhagenBusinessSchool,Centreor Economicand BusinessResearch, nd CentreorIndustrialEconomics

Sven E. FeldmannUniversity f Chicago

We analyze informational lobbying in the context of a multimemberlegislature that decides on the allocation of a public good. First, weobserve that a majoritarian legislature provides widely different in-centives for interest groups to lobby than a single decision makerdoes. Second, we compare a decentralized legislature, such as the U.S.Congress, to a parliament with strong party cohesion. Congress's de-centralized nature allows the strategic formation of policy coalitionsamong high-demand districts and the exclusion of low-demand dis-tricts. This increases the incentive to provide information about dis-tricts' demand relative to a legislature in which the governing coalitionis fixed.

I. IntroductionInterest groups participate in the political process by contributing topolitical campaigns and to the parties, they testify in congressional andadministrative hearings, they communicate informally with policy mak-ers and their staff, they present research and technical information, theydraft policy proposals and provide legal expertise, and they inform andmobilize their members and the public on matters that concern them(see, e.g., Schlozman and Tierney 1986). Naturally, interest groups en-

We thank David Baron, Francesco Caselli, Steve Levitt, MassimoMorelli, KasperNielsen,Christian Schultz, Kenneth Shepsle, and an anonymous referee for helpful comments.[ournal of PoliticalEconomy, 002, vol. 110, no. 4]? 2002 by The University of Chicago. All rights reserved. 0022-3808/2002/11004-0002$10.00

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JOURNAL OF POLITICAL ECONOMYgage in these activities to advance their issues and to affect policy out-comes in their favor.Economic models of interest group influence fall into two categories.In the first category, interest groups offer campaign contributions orother politically valuable resources in exchange for services or legislativefavors. Many of these models study how a group optimally allocates itsresources between the various members of the legislature in order tosecure the required support (Snyder 1991; Stratmann 1992; Grosecloseand Snyder 1996; Baron 1999).Papers in the second category study the extent to which interestgroups can affect policy outcomes by providing relevant information tothe lawmaker. Interest groups have an incentive to offer information ifthey can influence the outcome in their favor (e.g., Calvert1985;Austen-Smith and Wright 1992; Austen-Smith 1995; Ball 1995; Lohmann 1995,1998; Laffont 1999).For most interest groups the dissemination of information in oneform or another absorbs a far greater share of groups' resources thanpolitical contributions do. The group of the top 100 contributing in-terest groups collectively gave $144 million to candidates running forfederal office during the 1998 election cycle; a similar group of organ-izations engaged in lobbying spent more than $1 billion on lobbyingactivities during the same period.'Informational theories of lobbying focus conspicuously on a singledecision maker and do not address the fact that in a legislature decisionsare made by compromise and via (some form of) majority rule. Theinstitutional structure of the legislature, whose importance is extensivelystudied by the theories of legislative decision making, is absent in allpapers of informational lobbying of which we are aware.This paper analyzes informational lobbying in the context of multi-member legislatures deciding over the amount and the distribution ofa regional public good. We show that the difference between a singledecision maker and a legislature can be crucial for the interest groupto provide information at all. As we suggested in an earlier paper (Ben-nedsen and Feldmann 2000), if an uninformed lobby with known andcertain preferences confronts a single decision maker who is uncertainabout the state of the world, it may have little incentive to search forinformation. The reason is that the benefit of providing positive infor-mation from the lobby's point of view is offset by the cost incurred whenthe policy maker updates her beliefs since the lobby does not provideany information.

'These amounts are calculated from data provided by the Center for Responsive Politics(2001), which are based on filings with the Federal Election Commission and filings underthe Lobbying Disclosure Act of 1995. Owing to the limited coverage of the law,the availablelobbying data represent a lower bound for actual lobbying expenditures.

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An interest group that lobbies a majoritarian institution must be con-cerned with the effect of its information on the composition f the ma-jority that supports a proposal. In our setup the interest group lobbiesfor a higher aggregate amount of the public good; thus it prefers theenacting coalition to consist of high-demand legislators. The key ele-ment in our analysisis that the majoritycoalition may change in responseto the information provided by the interest group. When the lobbyidentifies high-demand districts, their representatives are included inthe majority, whereas districts for which the lobby does not provideinformation are excluded. The interest group thus internalizes the ben-efit of providing positive information without bearing the cost of neg-ative signals. Therefore, it may be beneficial for a lobby to engage ininformational lobbying vis-a-vis a legislature, even if it is not so for agroup that faces a single decision maker.A second focus of the paper is to explain how different legislativestructureschange interest groups' incentives to lobby the legislature.Empirical evidence and case studies suggest a significantly different roleof private interests in the legislative process in the United States and inEuropean parliamentary democracies.2 Large and well-entrenched in-terest groups form important constituencies in European parliamentarydecision making. By comparison, however, Capitol Hill teems with lob-bying organizations and lobbyists trying to influence political decisionsin their favor.3 Observers of the policy process are often struck by theintensity of lobbying-or lack thereof-in the system on the other ideof the Atlantic.Our model allows a comparison of the incentive to lobby a parlia-mentary legislature versus a legislature with low voting cohesion, suchas the U.S. Congress. As others (e.g., Huber 1996) have argued, a crucialdifference between the two systems is the vote of confidence procedure,a mechanism that allows the proposer of a bill in the parliamentarysystem to link the government's survival to the passage of the bill. Dier-meier and Feddersen (1998) show that this procedure engenders dis-cipline within the governing coalition and leads to a high degree ofvoting cohesion in the parliamentary system.

2 Systematic comparative data on interest group activityare scant and, where available,largely of the "soft"type:elite interviews, surveystudies, and subjective evaluations (Liebert1995). After studying 150 key pieces of legislation in postwar Germany and identifyingroughly 3,000 interest group interventions in the legislative process, von Beyme (1998)concludes that "the influence of interest groups in [the German] system ultimately de-pends much more on their capacity to penetrate the party organizations and the estab-lishment of parliamentary groups than on influencing the legislators in the committeesvia interventions. These are rather an indicator of influence than of direct causality be-tween intervention and decision" (p. 59).3While this is only indicative of lobbying activity,in Germany fewer than 1,700 organ-izations are registered with the Bundestag (Lobbyliste001), compared to 11,000 listed inWashingtonRpresentatives 2001).

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JOURNAL OF POLITICAL ECONOMYThe results derived in our informational lobbying game provide arationale for the different intensity of legislative lobbying in the twosystems. We show that the voting cohesion induced by the confidenceprocedure diminishes the ability of information to change the com-position of the policy coalition. Hence, the lobby now internalizes thecost of transmitting negative signals for districts that are not excludedfrom the policy coalition. As a result the incentive to lobby the legislaturein the parliamentary system is reduced, and lobbying activity may bediverted to other parts of the policy process, such as the ministerial levelor the bureaucracy. The relative importance of U.S. members of Con-gress and their exposure to lobbyists may exactly be a consequence oftheir low coalitional loyalty.Our model assumes that legislators care about policy outcomes andupdate their beliefs rationally, that is, according to Bayes' rule. Thispaper takes a game-theoretic approach and assumes that all actors makethe best use of the information available. It might be tempting to arguethat legislators do not learn from information they do not receive, thatis, that they fail to update their beliefs in this situation. We shall showbelow that our main result, that the incentive for a lobby group to lobbya legislature is higher in the absence of the vote of confidence proce-dure, carries over to this case of naive belief formation. Another com-

mon caveat is that lobby groups are sometimes thought to be betterinformed than politicians without any search effort. While we do con-sider the case in which the group can acquire the information costlessly,we believe that becoming informed is a conscious choice for the group,in which case the group considers the consequences of this choice. Amodel in which lobby groups are simply "born"with the relevant in-formation seems less satisfactory on this account.Helpman and Persson (1998) and Baron (1999) analyze the impor-tance of legislative structure for interest groups' lobbying behavior. Inboth papers the means of influence are campaign contributions, orfinancial incentives. Our analysis extends the comparative institutionalanalysis of lobbying behavior to interest groups' use of information s ameans of influencing policy outcomes.The paper is organized as follows. In Section II we present the genericstructure of the lobbying and legislative game. Section III solves themodel for a legislature without the vote of confidence procedure ("con-gressional legislature"). We provide a sufficient condition for the lobbyto engage in information transmission and argue that this condition isgenerally satisfied. We then characterize the optimal search strategy forthe lobby group in a large legislature. In Section IV we introduce thevote of confidence procedure ("parliamentary legislature") and showhow it reduces the lobby group's incentive to search for information.We provide a sufficient condition for the lobby not to search at all. In

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addition, we discuss how to extend our result to a dynamic setting inwhich the value of belonging to the government coalition is derivedendogenously. Section V concludes the paper.

II. A Model of Lobbying for a Public GoodIn this section we set up a simple model of informational lobbying thatprovides the basis for the comparative institutional analysis in the fol-lowing sections. We are focusing on public goods of a distributivenature,that is, goods whose incidence is local to geographic districts while beingfinanced through general taxation. Examples may be local highway con-struction, environmental cleanup or regional development projects, orgrants-in-aid,whose benefits accrue mainly locally and costs are sharedthrough the general tax bill.4The benefits accrue directly to the publicand, via the electoral connection, are internalized in the representative'sdecision making. Districts differ in the degree to which their residentsvalue the public good.A national interest group that benefits from the provision of publicgoods in all districts seeks to promote its overall provision. Such a groupmight be the national trade organization of private suppliers or con-tractors for the projects to be built or a national public-interest organ-ization such as the Sierra Club or organized beneficiaries such as theAmerican Association of Retired Persons. In order to promote the pro-vision of the public good, the group can collect decision-relevant in-formation about the good's positive impact in each district and cantransmit this information to the legislators to influence their policychoice. The decision to provide information is naturally strategic.To be specific, consider a country with n districts of equal size, eachrepresented by one legislator, i = 1, ..., n. We assume that n is odd anddefine N = {1, ..., n} as the set of legislators.The legislature decides on the size and distribution of public goodsgi that are to be built in the districts. Let g = (g, ... ,gn) be the vectorof the public-good allocation and G = i,Ngi the total amount of thepublic good provided. The total cost y(g) is increasing in gi; or simplicitywe assume that y is a convex function of the total amount of publicgood, y(g) = G2,which reflects the fact that inefficiencies or moni-toring costs increase with the size of the federal bureaucracy or that theopportunity cost of taxation increases with the size of tax levied. Costsare shared equally among the districts through lump-sum taxation,ti = (1/n)7(g).

4See Lowi (1964) and Wilson (1980) for a discussion of such projects. The paper byWeingast, Shepsle, andJohnsen (1981) is a classic model of such pork barrel projects.



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JOURNAL OF POLITICAL ECONOMYEach legislator i is interested in net benefits for his or her districtand the value of the governing coalition; thus she has the utility function

ui = rigi - t + bi, i E N.The benefit of the public good to the district depends on the marginalvaluation ri,which is a random variable that can take on two values: rwith probability 1 - p? and r with probability po, with r> r (> 0).5 Thesuperscript o indicates the common ex ante beliefs, that is, before anyinformation is generated or transmitted. For simplicity, let the beliefsbe identical for all districts, po = p?. Furthermore, the ri's are uncor-related across the districts; the interpretation is that the benefit of thepublic good to the district depends on some unknown, district-specificproperties.Bills, or proposals to allocate the public good, are introduced by aproposer, or agenda setter, denoted a. The proposer is chosen randomlyfrom a governing oalitionM C N.6The proposed bill g passes if a majorityof legislators vote for the bill. We refer to the collection of legislatorssupporting the bill as a policy coalition,denoted by C. As will becomeclear presently, being a member of the governing coalition and thushaving a chance to be selected as proposer conveys a benefit, bi.Forsimplicity we assume that bi = b > 0 for all i E M and bi = 0 for alli t M. In Section IV we discuss how to endogenize the value of biin adynamic version of the lobbying game.The interest group that benefits from the provision of the public goodcan search for high valuation of the public good in the districts (ri =i) and can strategically provide this information to the legislators. Weassume that the lobby's decision to search in a district is a long-termone; that is, it is made before the government coalition or the agendasetter is chosen. To make the analysis succinct and relatively straight-forward,we assume throughout the paper that the group's search activitycan be observed y the legislature.7 Given the symmetry of the model,the lobby is indifferent about in which district to search. Its searchstrategy is therefore simply the number of districts in which to search,s. Furthermore, let I, E {0, 1} indicate whether s> 0.With this notation we can now state the lobby group's utility asUL = G- IZ, where Z> 0 is the lobby's cost of searching for infor-mation on the districts' valuations. We think of the search cost as theorganizing cost for engaging in information search and transmission,

5Any nondegenerate probability distribution on the positive domain would do.6 In the U.S. Congress, M is the majority party; in the parliamentary system, it is thegoverning partyor coalition. Since we are not concerned with the election and the coalitionformation stage, we assume M to be determined exogenously by nature's move.7 The insight of the present paper carries over to the case in which the group's searchactivitycannot be monitored, as shown in Bennedsen and Feldmann (1999).

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LOBBYING LEGISLATURES

Group hooses Naturedraws Group ends a proposes Legislaturewhereto search M andae M messages IL g = (g1,...,)S, votes on gchooses vote ofconfidenceproc.

FIG. 1.-Time line

and not as a district-specific cost; it is incurred only once when thegroup decides to search and may be zero.8 Note also that the lobbygroup is risk-neutral in the provision of the public good.When the interest group searches for information about district i'svaluation of the public good, it receives a signal a,,which with probabilityq reveals the district's true benefit, ai = r;, and with probability 1 - q isuninformative, ai = 0. After the proposer (and in the parliamentarysystem the government coalition) is chosen, the interest group sendsmessages ti = (iA, ... , J) to the legislature, where ti, E {ai, 0}. Inwords: the group can transmit the information it found, or pretend itfound nothing, but it cannot "lie"by forging information.9After the messages are sent, the proposer makes a policy proposaland submits it to a vote. The only difference between the congressionaland the parliamentary games in our analysis is that in the parliamentarysystem the proposer has the ability to attach the vote of confidence tothe proposed bill. After the proposal, the legislature votes on the bill,possibly with the vote of confidence attached, by simple majority rule.If a bill with the vote of confidence is rejected, no public good is awardedand the government steps down, which results in the loss of bifor alli E M. If a bill without the vote of confidence is rejected, no publicgood is awarded and all legislators keep their continuation values.The time line of the game is shown as figure 1. The option to choosethe vote of confidence procedure exists only in the parliamentary system.

8 This provides the greatest incentive to search in as many districts as possible and is inno way restrictive.9This simplifying assumption of "hard information" can be interpreted as the lobbygroup's need to maintain the reputation of credibility to be effective in the long run. Asa practical example, an interest group can commission an independent studyon the impactof a certain policy in various districts. While the research institution's scientific reputationlends the study credibility and prevents manipulation of the study's results, the lobbygroup can choose to publish the results, or parts of them, only when they are supportiveof its interests.

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JOURNAL OF POLITICAL ECONOMYIII. Lobbying CongressIn this section we consider a legislature without the vote of confidenceprocedure, such as the U.S. Congress, where the proposer crafts policycoalitions opportunistically. The main insight we provide is to show thatthe lobby's incentive to provide information to a congressional legis-lature differs widely from the situation in which the lobby faces a singledecision maker. Second, we characterize the lobby group's optimalsearch strategy in large legislatures. In the subsequent section, theseresults will be compared to the incentives a lobby group has to provideinformation when the vote of confidence procedure enforces votingcohesion within the legislature.

The proposer, or agenda setter, a, allocates the public goods to dis-tricts so as to maximize her utility and therein crafts the most favorablemajority among the legislators, irrespective of party affiliation. This isconsistent with the empirical observation of low voting cohesion anddecentralized proposal power in the hands of committee chairpersonsin the U.S. Congress.We proceed by solving for the equilibrium strategies by backwardinduction. The equilibrium concept is perfect Bayesian Nash. First, wederive the proposer's optimal allocation of public goods to the districtsfor any given beliefs she might hold about the districts' valuation of thepublic good. Let Er,be the common posterior expectation of rifor alllegislators.Given her beliefs, the proposer makes a take-it-or-leave-itpolicy offerto the other legislators. If the proposal does not receive the support ofa majority in the legislature, zero public good is provided. Thus theproposed allocation must provide at least m> (n + 1)/2 legislators withnonnegative utility. Let C C N be the set of legislators supporting theproposal and C_a C\ {a}the set of a's coalition partners. Since thebenefit to be in the governing coalition, bi, does not depend on theoutcome of the vote in the congressional system, we shall drop bifromthe legislators' utility functions in this section. The participation con-straint for coalition partner i E C is

1Erg,- - G2> 0.2n -The problem for the agenda setter is to choose g so as to maximizeher own (expected) payoff, subject to receiving the support from alllegislators in C. First observe that the support of legislators outside ofC is not needed to pass the proposal; thus it is optimal to set g = 0,

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for all j ? C, and to have the participation constraint binding for eachcoalition partner:gi G2 Vi E C_a (1)2nEri

Thus a's problem becomes

maxEraG-i g-i) ng i C-a

subject to (1). Since the maximand is decreasing in the number ofcoalition partners in C_a, t is clear that a optimally forms a minimumwinning coalition, that is, ICI = (n + 1)/2 = m. To simplify notation,define for all subsets C c N the vector rc = (ri)i), the vector of valua-tions for all districts in C. Substituting for g1and G above and differ-entiating yields the optimal aggregate level of public good as a functionof the expected marginal valuations in the majority districts:nG*(Erc) = jC (1E)(2)

Combining (1) and (2) yields the allocations to each district:O for i C Cn 1g = E c(/E)]2 for i C-a (3)2Eri[Zc(1/E 1 )] 2n (1/Er) + EjEc(1/Erj)

2 [c(l/)]2 ~for = a.2 [Eic(1/Erj)]2The proposer's decision internalizes the tax cost imposed on her owndistrict and the supporting legislators', but not the cost to the legislatorwho is not a member of the supporting majority (Weingast et al. 1981).In addition to the best-response allocation, it will be useful for ouranalysis later to know the characteristics of the optimal allocations asfunctions of the expected marginal benefit. Lemma 1 summarizes the

results.LEMMA1. Assume that the proposer maximizes her own payoff subjectto being supported by the majority coalition C. Then g*, given by (3),is the optimal proposal given the proposer's beliefs. The functionG*(Erc)is increasing and strictly concave in each argument.



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JOURNAL OF POLITICAL ECONOMYProof.Optimality of (3) has been shown above. The first and secondderivatives of (2) are

dG*(Erc) naEri [EriYEec /Ej)] 2and

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it will be useful to note that Eorcan be written as a linear combinationEor = (1 - pq)Er + pqr,which is an application of the law of iteratedexpectations and is easy to verify.The notation can be summarized as follows:

Eri Expectation of ri (unspecified)Eor Ex ante expectation of riwhen lobby has notsearched for informationE,r Posterior expectation of riwhen the lobby hassearched (or is believed to have searched) for in-formation and has not revealed any positive findingErc Vector of expected Ericontaining all ie Cc N

Before analyzing the incentive for the interest group to search whenfacing an entire legislature, let us first derive the incentive for the lobbygroup vis-a-visa single decision maker.LEMMA. Assume n = 1. Then the lobby group never gains fromsearching.ProofFor a single decision maker, (2) simplifies to G = ga = Era.Thusthe lobby group's gain from searching isAUL = pqr + (1- pq)Esr- Z-Eor 0. Q.E.D.Lemma 2 shows succinctly the effect of Bayesian updating. The ex-pected benefits of the group's search and its expected cost in the formof Bayesian updating average exactly to zero. Thus, for any strictly pos-itive search cost Z, the group would strictly prefer not to search forinformation in the district.We shall now show that the lobby group always has an incentive tosearch in some districts when it lobbies a multimember congressionallegislature. The intuition is that if the agenda setter in the congressionalsystem is strategic in composing the majoritythat supports her proposal,she will choose to include the districts with highest expected valuationfor the provided distributive benefits. Thus, if the group's search in adistrict is not successful, then this district will simply not be consideredfor the agenda setter's majority coalition, at no loss to the nationalinterest group.There are a few wrinkles to this story, however. First, if the district inwhich the group searches is chosen as the agenda setter, then the con-cavity of G* with respect to the agenda setter's valuation lowers theprovision of public good in expectation. Since the identity of the agendasetter is unknown ex ante, the group considers an expected cost therisk that it searches in the setter's district. We derive a condition on thedistribution of public-good valuations that assures that the group wantsto search in at leastone district (proposition 1).



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JOURNAL OF POLITICAL ECONOMYSecond, the group never wants to search in too manydistricts. If itsearches in many districts, it raises the chance that districts for whichit found no favorable information need to be included in the majoritycoalition, thus lowering the expected total provision of public good.Proposition 2 below characterizes the optimal search strategy in largelegislatures.PROPOSITION 1. The lobby group alwayssearches in at least one districtin a congressional systemwith n districts if the following condition holds:

r-2EOr < n. (C1)EsrProof. f the group searches in one district, the expected net gain fromsearching is

AG, = pq[G*(r,Eorc) - G*(Eorc)]1 - pq+ [G*(Esr,Eor_ - G*(Eorc)], (4)n

where the first term is the expected gain from having a successful searchin any district i, and the second term is the expected loss due to thepossibility of an unsuccessful search in the agenda setter's district.When we plug in the G* function and simplify, the net gain becomes

Eor- Esr- (1 - pq)Eorm[Eor+ (m- 1)E,r]Notice that pq(r - Eor) = (1 - pq)(Er - E,r) since Eor = (1 - pq)E,r+pqr.Therefore, AG1 s positive iff

n 1Er + (m - 1)r Er + (m- 1)E,r

orr- 2E,r < n.Esr

Q.E.D.Since Eorand E5rare functions of p, q, r, and r, condition (C1) delin-eates a sufficientset of parameters (p, q, r, r, n) for which it is optimalfor the group to search in the congressional system. Since condition

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(C1) can alwaysbe satisfied for a large enough legislature, we concludethat searching is optimal in most situations in the congressional system.The result above shows how the incentive to lobby a multimembercongressional legislature is very different from lobbying a single decisionmaker. In fact, while the interest group can never gain from searchingfor information when confronting a single decision maker, it almostalwayssearches when confronting a multimember majoritarian institu-tion. The reason is that the majoritarian nature of the decision makerenables the group to benefit from positive information about districts,while at the same time avoiding the detriment of negative (or nil) in-formation. Since it is in the agenda setter's andthe lobby group's interestto identify high-valuation coalition partners, lobbying is most effectivein the multimember congressional structure.

OptimalSearchStrategyn Large LegislaturesThe previous section showed that an interest group has an incentive tosearch for information in the congressional legislature when the legis-lature is large and the group reveals the information it finds strategicallyto the legislature. It remains to derive the optimal search strategy.Giventhat it is in the group's interest to search, in how many districts will thegroup optimally search?When the group searches for information, four different circum-stances can arise, in each of which searching either raises or lowers theproposer's allocation of the public good or leaves it unaffected.Let K C N be the set of districts in which the lobby group searches,k = IKI> 0. Furthermore, let H = {i E Klai = r and i - a), that is, thenon-agenda setter districts for which the group found favorable evi-dence, h = IHI.

When the group considers searching in an additional district j e K,the following four cases can arise:1. j = a. If j is chosen to be the agenda setter, the group incurs anexpected loss for searching due to the concavity of G* in ra. Thenext three cases assume that j * a.2. h < (n - 1)/2, k - h < (n - 1)/2. If the search in j is successful, j willbe included in the majority; if ao* r, it will not receive positiveallocation of the public good. In expectation, G* increases.3. h< (n- 1)/2, k- h> (n - 1)/2. If the number of unsuccessfulsearches is larger than half of the number of districts (excludingthe agenda setter's), then some districts for which t,i = 0 have tobe in the majority coalition, and search in j increases that number.Thus additional search reduces G*.



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JOURNAL OF POLITICAL ECONOMY4. h> (n- 1)/2. The number of districts with successful searches isalready sufficient to form a majority. Additional search does notaffect G*.

The expected ain from searching in k districts involves summing upthe best-response public-goods allocations resulting from each possibleoutcome, that is, with h ranging from zero to k, and weighting eachcase by the probability with which it occurs. Case 1, of course, occurswith a constant probability of 1/n, whereas the probability of the otherthree cases is given by the cumulative of the binomial distribution?q(k,pq).Suppose that the lobby group has an incentive to search in at least kdistricts. The following lemma establishes the condition under whichthe group has an incentive to increase its search, that is, to search inat least k + 1 districts.

LEMMA 3. If condition (C1) holds, then in the congressional systemthe group has an incentive to increase the number of districts kin whichit searches whenever h< (n - 1)/2 and k - h < (n - 1)/2.Proof.Suppose that the group searches in k districts, and h< (n -1)/2 and k - h < (n - 1)/2. Then if the group searches in k + 1 districts,the expected change in public-good allocation is1 - pqAGk = pq[G*(r,Erc-) - G*(Er-)]+ n [G*(Esr, r_) G*(Erc)]

rEor rEor(h + 1)Eor+ (m- h - ) hEor+ (m- h)

rEorEsr+ (1 - pq) -.rEor+ hE,rEr + (m -h- 1) E,rrE.rhEor+ (m- h) ).

pqnrEor(r - Eor)[(h+ 1)Er + (m- h- 1) ][hEor+ (m- h) ]

(1 - pq) Eor(E r Er)[rEr + hEorEr+ (m- h- 1)iE,r][hE0r+ (m- h)r]

pqrEor(r Eor) nhEor + (m- h)r.(h + 1)Er + (m-h- 1 r

rrEr + hEorEsr (m - h- 1) Er.'

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LOBBYING LEGISLATURES 933where the last equality follows since Eor = (1 - pq)Esr+ pqr. Denote thedifference in the brackets by /. The term premultiplying 4 is positive;hence AGk> 0 if and only if 4 is positive. Rearranging terms, we have

n4'(h) =(h) Eor+ (m- 1) - h(r-Eor)1

Eor+ (m- l)Es,r- h(Er/r)(r- Eor)n 1

a- hb c- hdCondition (C1) implies that +L(h)>0 for h = 0. Furthermore, it iseasy to show that b/(a - hb)> d/(c - hd). Thus

nb d4'(h) = - >' (a - hb)- (c- hd)and

nb2 d2'(h) = (a - hb)3 (c-hd)Thus as 4 is convex, it is increasing and positive throughout. Hencecondition (C1) implies that AGk> 0. Q.E.D.Lemma 3 shows that condition (C1) is sufficient so that whenevercase 2 occurs, the group has an incentive to search in more districts.Countervailing this incentive, of course, is any (possible) occurrence ofcases 3 and 4; this is considered below.An immediate consequence of lemma 3, however, is that whenevercondition (C1) holds, the group alwayssearches in at leasthalf the dis-tricts: If k < (n - 1)/2, then the premise of lemma 3 is guaranteed tobe satisfied (because cases 3 and 4 cannot occur), and the group hasa strict incentive to increase the number of districts in which it searchesuntil it searches in at least half of the districts.

Calculating the optimal number of districts using the binomial dis-tribution of successful and unsuccessful searches is analytically cum-bersome. For large n, however, the calculation simplifies since the dis-tribution of successful searches approaches the expected value pqk.Proposition 2 shows that the optimal fraction of districts in which thegroup searches in the congressional system converges to a fixed numbergreater than one-half and less than all of the districts. The exact pro-portion depends on the search parameters (p and q).Let a = k/n be the proportion of districts in which the groupsearches.


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PROPOSITION2. For large n in the congressional system, the propor-tion of districts in which the group searches in equilibrium is1 1a* -- min --2pq 2(1 - pq),

ProofAssume that the group searches in kdistricts, and let (as before)AGkbe the expected gain from searching in one additional district.First,notice that as n -- oo,condition (Cl) in proposition 1 is satisfied.Thus, by lemma 3, if max{h, k - h < (n - 1)/2, then AGk> 0 and thegroup has an incentive to increase k.Second, if k - h> (n - 1)/2, case 3 or case 1 occurs, implying thatAGk= G*(E,r,r_i) - G*(ri) < O.Alternatively,if h > (n - 1)/2, case 4 or(with a 1/n chance) case 1 occurs, so that AGk= (l/n)G*(E,r, r,_) -G*(rc)< 0.Of course, h is a random variable distributed binomially 06(k,pq),withE(h) = pqk.As n - oo,the central limit theorem implies that

h a.s. h a.s. kk Pq n n= pqa

Suppose by contradiction that the optimal proportion of districts inwhich the group searches for large n isk*(n) 1 1a * < min -n 2pq 2(1 - pq)

Then for arbitrarilysmall c, e'> 0, there exists an n large such that E,c' < 1/n and such thath 1- < pqa* + with probability one.

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LOBBYING LEGISLATURESa

1-

0.8-min( J2pq'2(1-pq)0.6-

0.4-0.2-

0 0.2 0.4 0.6 0.8 pqFIG.2.-Optimal search strategy without the vote of confidence procedure

For such n, AG,< 0. Thus the group has an incentive to decrease k, andc * is not optimal.It follows that1 1a * e min -- ?max{e, E'}2pq' 2(1 - pq),

for large n, where E,E'are arbitrarilysmall. Q.E.D.The optimal search strategy-and thus the optimal number of dis-tricts-depends, as proposition 2 shows, on the parameters of the search.Figure 2 shows the optimal proportion of search districts a * for a largelegislature as a function of pq. As we observed earlier, the group opti-mally searches in at least one-half of all districts and (generically) neverin all districts.

IV. Lobbying a Legislature with a Vote of Confidence ProcedurePolicy making in a parliamentary system is characterized by a high de-gree of cohesion within the governing coalition. We now show the sec-ond main insight of the present paper, namely that this voting cohesionsignificantly reduces an interest group's incentive to provide informa-tion. We end the section with two additional discussions on how to

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JOURNAL OF POLITICAL ECONOMYendogenize the value of being a member of the governing coalition andhow our results carry over to the case in which legislators have naivebeliefs.

Diermeier and Feddersen (1998) show how voting cohesion can beinduced by the vote of confidence procedure, since coalition partnersderive benefits from being in the government only if the governingcoalition is maintained. Remember that we defined the value of be-longing to the governing coalition, b, as the rent its members lose ifthe government is dissolved.Our focus is on the policy making process and lobbying, and we areless concerned with the coalition formation stage;we thus simply assumethat nature chooses a governing coalition M and a proposer a E M.Proposera proposes a policy vector and decides whether or not to attacha vote of confidence to the proposal. To simplify the analysis,we assumethat IMI = (n + 1)/2; that is, the governing coalition is a minimummajority.1?Byattaching a vote of confidence to policy g, the proposer can exploitthe coalition partners' incentive of maintaining the governing coalition.When b is large enough, the proposer proposes a policy that receivesthe support from the members of the governing coalition and extractsthe surplus b. When bis small, the proposer may be better off choosingthe best policy coalition C,irrespective of M. Let C C N denote the bestpolicy coalition that constitutes a majority. From the previous sectionwe know that Cwill never be a supermajority, that is, ICI = (n + 1)/2.If the proposer seeks support from policy coalition C * M, she will notattach a confidence vote to the proposal in order not to risk the dis-solution of the government, and b remains unaffected by the outcomeof the vote on the proposal in this case.The proposer's problem when seeking support from M by attachinga vote of confidence is

1max r,g, - G2+ bg 2nsubject to

1rig-- G2+ b>0 Vi M,2ngi >0 Vi E N.

The solution to this problem in terms of the aggregate amount of public10An alternative assumption would be to let M be of any size but assume that a vote ofconfidence requires unanimity among the coalition partners.

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good is given by~n nif b


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JOURNAL OF POLITICAL ECONOMYeach element in ErBwill be either r or E,r). The allocation of publicgood the proposer chooses is given by

G*(ErB, ErM\B) (5)Now consider that the group searches in k + 1 districts, by addingdistrict j. In case 1, j E M, which implies the expected allocation

pqG*(r, ErB, ErM\(BU,,))+ (1 - pq)G*(Esr, ErB, ErM,). (5')By concavity and Jensen's inequality, (5') is less than (5).In case 2, j ? M, in which case the allocation is not affected by thesearch (i.e., as given in eq. [5]).

Since both cases have a positive probability of occurring, the expectedallocation after searching in k + 1 districts is less than for searching ink districts. Since k is any number between zero and n - 1, this meansthat the group is strictly worse off searching in any district. Q.E.D.Lemma 4 builds on the following fact. If the policy coalition is fixedand cannot be affected by the interest group's message, then searchingin a coalition member's district is a risky undertaking for the interestgroup: If the search is successful, it increases the total amount of publicgood provided; if it is not successful, it reduces the amount. As shownin lemma 1, the proposer's optimal allocation of public good G* isconcave in the districts' valuations for the good; thus, by Jensen's in-equality, the expected allocation is lower than if the group does notsearch.We are now ready to state our main result. Proposition 3 establishesthe conditions under which a proposer chooses support from M only,leaving interest groups with no incentive to search.PROPOSITION 3. The vote of confidence procedure reduces the in-terest group's incentive to search for information. In particular, thegroup never searches if 2nb>r(r-r-) 2 _b. (6)

Proof.After the lobby has delivered its message, two situations canarise. Either the proposer selects as policy coalition the group of leg-islators with the highest expected ri, C, or she proposes a policy sup-ported by the members of the governing coalition M.In the former case the lobby has the same benefit from its searchactivity as in the case without the vote of confidence procedure (con-gressional case). In the latter case, when the proposer chooses supportfrom M, the lobby group's benefit from searching can never be higherthan in the congressional case since M may include legislators who, expost, do not have the highest expected ri. It remains to show that b>

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LOBBYING LEGISLATURES 939bis a sufficient condition for the proposer to choose a policy supportedby M independently of the information transmitted by the lobby.To show this, consider the most adverse case, where the proposer hasthe largest incentive to include legislators from outside the governingcoalition. This case occurs when the lobby has delivered messages/, = r for all i ? M and = r for all i E M_a.If the proposer chooses support from the governing coalition, shewill link the policy to a vote of confidence. The aggregate amount ofpublic good will be

nG*(Era, M-) = (m- 1)(1/r) + (1/Era)The utility, u,+, of the proposer in this case is

n Er2r Era+ =- -+(m- I)b + b.Ua 2 (m-- I)Era+ r rIf the proposer instead chooses support from outside the governingcoalition, she will not use the vote of confidence procedure and theaggregate public good will be

nG*(Era, (m- )(/) /Er)The utility, ua", of the proposer in this case is

n Erra 2 (m- 1)Era+ -rThe proposer therefore prefers to find support within the governingcoalition if u+ - u-_ > 0, which reduces to

nrEra r(m- )b . (7)-2 .(m- 1)Er+m- )Era+ rSince

r r(m- 1)Era+r mEra

andr r

(m- 1)Era+ r mErawe get an upper bound on the right-hand side of equation (7) by sub-stituting these latter terms (note that this is a least upper bound as


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JOURNAL OF POLITICAL ECONOMYm - co), which reduces to

nr(r-r) 2nb> =r(r-r)2m(m- 1) n2 - 1

Q.E.D.Proposition 3 establishes that an interest group has no incentive tolobby a legislature with the vote of confidence procedure when b, thevalue of keeping the government in office, is large enough. The reasonis that with b> b,the proposer alwayschooses the policy that is supportedby members of the governing coalition. Thus, from the logic of lemma3, the interest group has no incentive to search for information.Comparing the results from Sections III and IV,we observe that policycoalitions are formed differently in the parliamentary and the con-gressional systems, and as a consequence, they provide private interestgroups with very different incentives to lobby. When the proposer hasthe ability to link the policy proposal to a vote of confidence, she createsvoting cohesion among the governing coalition, thus reducing the ben-efit of lobbying with policy-relevant information. If the voting cohesionis sufficiently strong, then the interest groups abstain entirely fromsearching.

The Valueof GovernmentMembershipSo far we have assumed an exogenous value of belonging to the gov-ernment coalition, b. The benefit of keeping the government in powercan be endogenized in a dynamic policy game in which a legislatureconvenes for multiple policy periods." Consider such a legislature witha vote of confidence procedure, and assume that a lobby has searchedfor information about one particular policy issue. The agenda settercan now choose to ask for the support of the governing coalition byinvoking the confidence procedure, or she can seek support from dis-tricts with the highest demand for the public good. The cost of askingfor support from the governing coalition is that the majority may includelow-demand districts; this cost is independent of the number of re-maining policy periods. In contrast, the value of maintaining the gov-erning coalition for the members of the coalition, b, increases with thenumber of remaining policy periods, in which each member has achance to become the agenda setter. Thus, with a sufficient number ofpolicy periods remaining, the agenda setter will alwayschoose the sup-port from the government coalition, independently of the messagesfrom the interest group. This implies that as long as a government's

" The following discussion is formalized in Bennedsen and Feldmann (in press).

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time horizon is long enough, the interest group has no incentive tosearch for information.In legislatures without the vote of confidence procedure, there is nobenefit at any point in choosing the policy coalition identically to thegoverning coalition since the agenda setter cannot extract the members'value of belonging to this coalition. Hence, even when this value in-creases in the number of future policy issues, it never affects the lobby'sincentives to engage in information provision because the lobby is neverrestricted in influencing the composition of the chosen policy coalition.

Legislatorswith Naive BeliefsOur premise in the analysisabove is that legislators are rational decisionmakers that use all available information to form their beliefs about thedistrict-specific marginal utility of the public good. It is important toemphasize that the different incentives for interest groups provided bya different legislative structure do not hinge on legislators' updatingtheir beliefs according to Bayes' rule. One might think that many leg-islators update their beliefs only from the evidence presented to themand not from the evidence that is withheld by the lobby group.

To see the consequences of such "naive"belief formation, assume thatthe legislators update their prior beliefs only if they are presented withhard evidence. In this case there is no information cost for the interestgroup of engaging in information provision. In the congressional leg-islature, the lobby, if searching at all, will choose to search in all districtsand the policy coalition will be filled with districts for which the lobbyfound positive evidence. In particular, if pq> and the legislature islarge, it is very likely that the policy coalition will consist almost only ofhigh-demand districts (possibly with the exemption of the agenda set-ter's district if no hard evidence was found here).Compare this to a legislature with a vote of confidence procedure.Since the policy coalition is unaffected by the information brought for-ward by the interest group, the expected number of high-demand dis-tricts in the policy coalition is pq(n+ 1)/2, which is much smaller thanin the former case. Hence, the benefit from searching for informationis reduced, and so is the interest group's incentive to engage in infor-mation provision.12

12This argument can be stated more precisely. With a slight change of notation, letG*(kr, (m - k)Er) be the aggregate amount of public good when k high-demand districtsare included in the policy coalition and G* kr, (m - k - 1)Er, Er,) be the amount of publicgood with k high-demand districts (excluding the agenda setter's) and the agenda setter'sexpected valuation Era.In a legislature without a vote of confidence procedure in whicha lobby group searches in all districts,k is binomially distributed ( n - 1, pq) and censoredat (n- 1)/2. The expected aggregate public good is



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JOURNAL OF POLITICAL ECONOMYV. DiscussionOur model of lobbying legislatures for a favorable policy has shown thatthe incentive that interest groups have to lobby depends, not too sur-prisingly, on the legislative structure in which the group operates. Theresults roughly correspond to the empirical observation that lobbygroups are more active in the U.S. Congress than in Europeanparliaments.The distinguishing feature we have identified between the parlia-mentary and congressional systemsis the abilityof parliamentaryleadersto induce voting cohesion through the use of the confidence procedure.On the other hand, leaders in Congress craft legislative coalitions ac-cording to the policy preferences of legislators for each policy issue ata time. As the analysis has shown, it is this feature that provides interestgroups with influence by passing on information that helps the agendasetter identify the most favorable supporters for the proposal.In the absence of this coalitional flexibility, as in parliamentary sys-tems, when the value of government membership is significant, theproposer has nothing to learn about the composition of the winningcoalition. Therefore, the only waythe interest group can affect outcomesis by providing information about a given setof districts. As we show, itis a feature of Bayesian updating that the ex ante (uninformed) beliefsare a weighted average of the posterior (informed) beliefs. Therefore,the degree to which the proposer's beliefs are influenced by favorableinformation and the potential detriment from the failure to do so canceleach other out in expectation. Moreover, since the proposer's reactionfunction is concave in her expectation, the group is strictly worse offtrying to lobby a proposer who is wedded to the districts she needs to

/ In-1-I - n-1 ~EG = E G*(zr,(- - z)Ejr, Er,) z = min k, 2 }, k~- A(n- 1, pq)].In a legislature in which the vote of confidence procedure enforces voting cohesion, onlythe successful searches in the governing coalition affect the public goods provided. Thenumber of high-demand districts k s therefore distributed 6( (n + 1)/2, pq). The expectedaggregate public good is

It is now easy to show that the benefit from searching is greater without a vote of confidenceby comparing the expected values of G. The distribution EG+,.

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LOBBYING LEGISLATURES 943favor.Thus, without the flexibility to customize winning coalitions, thereis no scope for informational lobbying.An interesting sideline to our results is that lobbying in the congres-sional system alwaysyields coalitions of "high-demand" districts, that is,districts whose preference for the public good is above the average andthat are willing to support the agenda setter's overprovision of the publicgood to some districts. In this regard the model suggests that the con-gressional system is more prone to inefficient allocation of policy thanthe parliamentary system.A variation of our model could relax the assumption that the interestgroup is organized at the national level and benefits from the provisionof the public good in any district. An interest group's benefit is oftenlocalized, and it may have a particular knowledge of the local incidenceof the public good that it might want to convey to the legislators. Firstresults along these lines indicate that if interest groups are local, theycompete for inclusion of their district in the majority by providing in-formation. Since such an incentive is absent in the parliamentary system,our general result prevails and may even be amplified.In the present paper we assume that the lobby's search activity isobservable for the legislature; this allows us to highlight the mechanismof Bayesian inference engendered by the group's search for favorableinformation. In practice, legislators cannot be expected to monitor in-terest group activities all too closely. However, if we maintain the stan-dard assumption of Bayesian games, namely that players are rationaland make the best (equilibrium) predictions about other players' unob-served behavior and that players' actions are optimal given their beliefs,then the main observationl3 from the present analysis pertains whenthe search activity is unobservable, albeit in a qualified form: the con-gressional system provides an interest group with a greater incentive tolobby via information search than the parliamentary system. The prin-cipal difference is that when the search activityis not observable, search-ing itself does not induce the proposer to revise her beliefs, so that theactivity itself does not impose a Bayesian cost. Instead, the proposerinfers whether or not the group has an incentive to search and formsher expectations accordingly. Thus, in equilibrium,he failure to reporta positive finding still carries the Bayesian updating cost.Some observers of lobbying argue that interest groups in Europe farmore actively lobby bureaucrats than legislators, relative to their U.S.counterparts. The standard explanation is that the legislature is lessimportant in the design of policy. Our analysis provides a differentexplanation for this observation: Lacking the ability to influence policycoalitions and outcomes in the legislature, interest groups focus their

13The following argument is developed in Bennedsen and Feldmann (1999).


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attention on the implementation of policy. Further empirical work willneed to shed light on the merits of either explanation.

AppendixLEMMAAl. The unique equilibrium message strategy for a lobby group thatreceives signal ai is

r if a = r~0 if ai E{0, r}.Proof: Let i(a) be the lobby group's message strategy, with &E 4MC{r, 0, 1rN, the set of all feasible message profiles. Let E(rlp) be the posteriorbeliefs given message / and g(t) be the policy vector chosen given beliefs basedon the message It. Finally, let G(,/) be the aggregate amount of public goodchosen conditional on the message. A perfect Bayesian equilibrium for thesubgame after the lobby group's search activity is defined as follows.DEFINITION 1. The tuple (t(a), g(A); E(rlp)) is a perfect Bayesianequilibriumif (a) p(a) = argmax,EmG(/), (b) g(p) is given by equation (3), and (c)E(rltj) is updated using Bayes' rule along the equilibrium path and out-of-equi-librium beliefs are updated correctly whenever hard evidence is presented.We first show that the following (t(ff), g(/); E(rlt)) is a perfect Bayesian equi-librium: (i)

{r if a = rH= 0 if ai {0, r};(ii) g(tg) is given by equation (3); and (iii)

r if /A=rE(r,t) = (1 -p,)r+ pr if A = 0,r if Iti= r,where p, = (p - pq)/(l - pq). Obviously,(') satisfiescondition b. Given beliefs andgiven that G*is increasing in Eri,condition a is also satisfied. Given the lobby'smessage strategy, part iii assures that beliefs are updated according to Bayes'rule along the equilibrium path and are consistent with the hard informationif the message is r. Notice that the message strategy for district i depends onlyon the district's signal, since the ri'sare stochastically independent.We now show that the equilibrium message strategy defined above is unique.Since by assumption a, = 0 =>p,i= 0, we need only to show that in equilibriuma "high" signal cannot (partially) pool with lower signals and an uninformativesignal cannot separate from a "low"signal.Suppose ai = r.A lobby that receives the high signal can always nduce beliefsEri= r by sending message j[i = r. Since E(riI/,i = 0) < r (by Bayes' rule) andsince G*is strictly increasing in Eri, ,i(r) = r is the lobby's unique best-responsemessage strategy.Next, suppose a, = r. For any message strategy, Bayes' rule implies E(riI i =0) >r = E(ri P i = r). Again, since G* is strictly increasing in Er,, A,i(r)= 0 isthe lobby's unique best response. Q.E.D.

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