Tuesday, November 22, 2011

The dynamics of firm lobbying

by William Kerr, William Lincoln and Prachi Mishra


November 22, 2011

Lobbying is a primary avenue through which firms attempt to change policy. But only a few big firms lobby and lobbying is highly persistent over time. This column argues that entry costs to the political process help explain these facts. It provides evidence from a change in immigration policy that induced firms that were already lobbying and were sensitive to the policy changes to switch from lobbying on other issues towards immigration while other firms did not enter the lobbying process.

Lobbying is a primary avenue through which firms attempt to change policy. In the US, probably the only country with systematic disclosure of lobbying activities, lobbying expenditures outnumber other forms of politically-targeted activities like campaign contributions by a factor of nine. Examples of important recent contributions to our understanding of this area are Bertrand et al (2011) and Blanes i Vidal et al (2011). While lobbying by businesses is a frequently debated issue in popular discourse, there is little systematic empirical evidence on these behaviours at the firm level.

In new research (Kerr et al 2011) we investigate firm-level determinants of lobbying participation with particular attention to the role that up-front costs may have in shaping firm behaviour. Empirical work on firm participation in the policymaking process is small, due in many cases to data constraints. Most of the available evidence comes from data on campaign contributions. These contributions often come from political action committees, which can be set up and organised by firms but which must raise money from voluntary donations from individuals.1 Recent exceptions have used firm-level data to analyse lobbying in particular sectors or activities, eg lobbying by financial services firms (Igan et al 2011), the link of lobbying to performance among large publicly traded firms (Chen et al 2010), and trade-related lobbying by Ludema et al (2010).


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