Lobbying as Investment under Uncertainty
by Mattias K. Polborn
We analyze a dynamic lobbying model with two opposing interest groups.
The state of a law is determined anew in each period, and the potential stream benefits from a favorable law change over time, in order to allow for an occasional change of the law in equilibrium.
The defender of the status quo is assumed to have an advantage in the sense that upsetting the status quo is more expensive than defending it, as in Groseclose and Snyder (1996).
The lobbies face an interesting strategic timing problem, similar to investment decisions under uncertainty: For the group which is not favored by the status quo, is it better to attack the status quo today, or rather to wait. Similarly, how much should the presently favored group spend in order to defend the status quo against an attack?
I derive the equilibrium of this game, and find the associated ``attack threshold''.
The main results are that the attack threshold is considerably lower than in a comparable one period game, and that the expenditure level necessary to overthrow the status quo is surprisingly low in comparison to the prize; the model may therefore be a solution to Tullock's (1989) ``rent seeking paradox''.
Keywords: Political economy, dynamic lobbying, rent-seeking.
JEL code: C7, D7.