Lobbying and Contract Delegation in Public Procurement

Interest groups exert influence on legislators' decisions about how to organize the contracting process in public procurement. Traditionally, centralized contracting structures have been favored to avoid allocative inefficiency. However, legislators have recently started to allow more and more contract delegation in public procurement projects. Different interest groups argue in favor and against this tendency. The objective of this paper is to judge from a normative perspective what socially efficient contracting structures are and from a positive perspective what contracting structure we can expect to find as equilibria of an endogenous lobby formation game. From the normative perspective, it is shown that both contracting structures can be socially efficient. Furthermore, the conditions under which a certain contracting structure is socially superior are identified. From the positive perspective the main result shows that we can have equilibria of the lobby formation game with socially efficient contracting structures and with socially inefficient contracting structures. Again, the circumstances under which the different equilibria occur are identified.

Special Interest Politics and Endogenous Lobby Formation

We analyze endogenous lobby formation within a slightly modified version of the "special interest politics" model of Persson (1998). In our model the interest groups hold different fixed endowments of an "infrastructure good" which is a complement in consumption of the local public good. For any fixed set of organized groups the lobbying game is shown to have a unique equilibrium if the cost-elasticity of the supply of public good to the interest groups by the government is not too large. The groups which benefit from larger infrastructure endowments are then proved to be the ones which become organized while the others remain unorganized.

Endogenous Lobby Formation and Endogenous Protection: A Long-Run Model of Trade Policy Determination

This paper provides a theory of lobby formation within a framework in which trade policy is determined through political contributions. Under certain conditions, free trade turns out to be an equilibrium outcome either when the government has a high affinity for political contributions or when it cares a great deal about social welfare. Moreover, greater inequality in asset distribution results in a greater number of lobbies and, in most cases, more protection for each of these lobbies. Furthermore, industries with higher levels of capital stock, fewer capitalists, more inelastic demand, and smaller geographical dispersion are the ones that get organized. (JEL F10, F13)