Regulatory Capture Through Pocketbook
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Abstract: I show that firms can influence regulation purely through voters. Since regulation affects profit, business activities provide political information to voters and enable firms to manipulate them into electing their preferred candidate. Incumbents can always concede to create favorable regulatory environments for business, and firms over-invest in equilibrium. When firms and voters are misaligned in regulatory preferences, business becomes a bad signal for incumbents who crowd out investments and lead to under-investment. Incumbents always retain office because the ex ante informative business is rendered uninformative in equilibrium. Voters enjoy more regulation and business, and insurance against extreme deregulators with aligned firms. Even when they are misaligned with firms, voters may still benefit, while firms can incur opportunity costs due to distortions caused by their ability to manipulate voters. Regulatory capture through manipulation of voters need not be bad for voters nor good for firms, but incumbents always come out ahead.
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[Work in Progress]
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Influencing Policy Through Public Opinion
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Abstract: I show that interest groups can achieve policy goals through voters by influencing public opinion. Special interests know the state of the world and have state-independent policy preferences. Voters use signals sent by special interests to form opinions about the appropriate policy. The altered public opinion creates electoral pressure, to which incumbents respond by making policy concessions from their ideal policies. The known bias of special interests constrains their ability to persuade voters, but the possibility that sufficiently misaligned incumbents may be electorally aided by moderate public opinion incentivizes special interests to exaggerate the state of the world in the direction of their bias. The strategic exaggeration and the resulting policy distortion increase with the extremism of the special interest. Interest groups' strategic manipulation of public opinion improves electoral accountability with moderate incumbents but worsens accountability when incumbents are extremist.
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[Work in Progress]
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