Regulatory Capture Through Manipulation of Voter Preference

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Abstract: Are lobbying and campaign contributions the only regulatory capture mechanisms? I show that firms can influence regulatory politics by strategically providing economic incentives (e.g., jobs) to voters. The voter prefers politicians capable of setting a high regulatory mandate. The firm wants to attain a particular level of regulation to, for example, minimize compliance cost or crowd out competitors through strict regulation. By introducing a trade-off between a direct benefit and selecting a competent politi- cian to the voter, the firm’s economic transfer induces the voter to prefer the type of politician favored by the firm. The politician’s choice of regulation and the politician selected by the voter are distorted to benefit the firm in equilibrium. My model shows that economic transfers to voters are a viable regulatory capture mechanism. In addi- tion to contributing to campaigns and lobbying, firms can affect regulation by co-opting politicians through voters.

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[Work in Progress]