Helping Friends or Influencing Foes: Electoral and Policy Effects of Campaign Finance Contributions

Campaign finance contributions may influence policy by affecting elections or by influencing the choices of politicians once in office. We study the trade-offs between these two paths to influence using a game in which contributions may affect electoral outcomes and signal policy-relevant information to politicians. In the model, an interest group and two politicians each possess private information that is correlated with a policy-relevant state of the world. The interest group may allocate its budget toward a candidate that shares its preferences or to a moderate candidate whose preferences may diverge from the group’s preferred policy. When the interest group receives negative information about its policy it expects greater preference divergence from the moderate candidate. Thus, the information content of contributions is driven by differences in the expected cost of electing the moderate. Contributions that increase the likelihood of electing the moderate may allow interest groups to signal good news about their preferred policy and influence the moderate’s policy choice. The informational effect breaks down when the electoral effect of contributions is too small to generate enough costs to deter imitation by groups with negative information. The welfare effects of contributions can be positive or negative depending on whether they generate enough policy information to offset the possible costs of interest group control over electoral outcomes. ∗Assistant Professor of Public Policy, Martin School of Public Policy and Administration, University of Kentucky. Contact: [email protected]. †Assistant Professor of Political Science, Texas A&M University. Contact: [email protected]. How can interest groups influence policy using campaign contributions? The literature emphasizes two mechanisms: interest groups can contribute money to influence who wins the election1 or to influence the policy chosen by the winner.2 Though existing empirical and theoretical research separately examines electorally-motivated contributions3 and influence-motivated contributions aimed at winners,4 effective policymaking requires an understanding of when and why groups choose one tactic rather than another. We argue that groups face a steep trade-off between influencing elections and influencing policy choices because contributions to one candidate may reduce the group’s credibility with an opposing candidate. Suppose a manufacturing firm seeks to avoid regulation of its product and can allocate contributions to an anti-regulation candidate or to a moderate candidate who will impose regulations if the firm’s product turns out to be unsafe. The firm possesses internal research about the safety of its product and expects that the winning candidate will have access to independent information after gaining office. One approach the firm may take is to contribute money to increase the probability that the anti-regulation candidate takes office. However, the moderate candidate may observe these contributions and infer that the firm believes its product to be so unsafe that electing the anti-regulation candidate is the firm’s only hope for gaining favorable policy. Thus, contributions to the antiregulation candidate may lead to more regulation in the event that the moderate candidate is elected. Alternatively, the firm may contribute to the moderate candidate. These contributions decrease the probability that the firm’s most preferred candidate is elected but might cause the moderate candidate to infer that the firm believes its product to be safe. Thus, there is a direct trade-off between influencing elections and influencing policy choices: a contribution that is beneficial with respect to one goal is detrimental with respect to the other. 1See Erikson and Palfrey (1998, 2000) and Hall (Forthcoming) on the effects of campaign fundraising on electoral outcomes. 2See Fouirnaies and Hall (2014), Gordon, Hafer and Landa (2007), and Stratmann (1991, 1992), for instance. 3Bonica (2013, 2014) estimates preferences of donors and legislators under the assumption of ideologically motivated giving. 4Influence-motivated contributions may arise from vote-buying (e.g., Denzau and Munger, 1986; Grossman and Helpman, 1994; Groseclose and Snyder, 1996; Diermeier and Myerson, 1999) or from contributions aimed at gaining access (e.g., Cotton, 2012, Forthcoming; Grimmer and Powell, 2015; Kalla and Broockman, Forthcoming).