Influence Activities, Coalitions, and Uniform Policies

Abstract: This paper examines the effects of endogenous coalition formation in a setting where agents lobby a policy-maker. For example, insiders lobby for weaker regulation to facilitate privately beneficial but socially-wasteful diversion of assets. Policy uniformity (e.g., one-size-fits-all rules) causes agents to free ride on each other’s lobbying and gives them an incentive to form lobbying coalitions, i.e., lobbies. We show that the coalition formation mechanism influences whether lobbies are formed by similar or dissimilar agents. Additionally, endogenous lobby formation causes the effects of policy uniformity and lobbying costs on aggregate lobbying activity and policy strength to be non-monotonic.

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