Sincere Lobby Formation

Abstract

This paper analyzes endogenous lobbying over a unidimensional policy issue. Individuals differ in policy preferences and decide either to join one of two opposite interest lobbies or not to take part in lobbying activities. Once formed, lobbies make contributions to the incumbent government in exchange for a policy favor as in a common-agency model. A "sincere-lobby-formation" condition for equilibrium is introduced: an individual joins a lobby if their gain from the policy change that this lobby might achieve exceeds a contribution fee. Thus, an equilibrium occurs only if no lobby member would prefer their lobby to cease to exist. I show the existence of an equilibrium with two organized lobbies. Individuals with more extreme preferences are more likely to join lobbying activities. I fi nd that lobbying somewhat moderates the government's preferences, i.e., it shifts the final policy in favor of individuals who are initially disadvantaged by the government's pro- or anti-policy preferred position. Under a utilitarian government, however, lobbying does not affect the fi nal policy, and political competition results in a socially optimal outcome. JEL classi cation: D72. Keywords: Sincere lobby formation; common agency; endogenous lobbying.