Endogenous expropriation with non-strategic lobbying

Abstract

This paper develops a theoretical model of political competition in which a lobby group provides financial support to candidates running for election in return for favorable policy outcomes. The lack of a legally binding contract may lead politicians to use campaign funds for their own personal benefit. However, this expropriation occurs entirely unexpected to the lobby group, which is non-strategic in nature. We find that there is a utility-maximizing fraction based on which politicians should allocate contributions between campaigning and private use. This fraction is increasing in the election winning premium and the proximity of the lobby group’s ideal position. It is less obvious, however, how this fraction relates to the relative importance of money for private consumption in the utility function. This fraction is determined by the comparison between the income effect, which pulls money toward personal consumption, and the substitution effect, which takes money away from personal consumption for campaigning.