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Astroturf-Interest-Group-Lobbyingand-Corporate-Strategy.pdf

Astroturf-Interest-Group-Lobbyingand-Corporate-Strategy.pdf

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Astroturf: Interest Group Lobbyingand Corporate Strategy
T
HOMAS
P.L
 YON
 Michigan Business SchoolUniversity of Michigan Ann Arbor, MI 48109tlyon@umich.edu
 J
OHN
W.M
AXWELL
Kelley School of BusinessIndiana UniversityBloomington, IN 47405 jwmax@indiana.edu
We study three corporate nonmarket strategies designed to influence thelobbying behavior of other special interest groups: (1)
astroturf 
, in which the firm covertly subsidizes a group with similar views to lobby when it normallywould not; (2) the
bear hug
, in which the firm overtly pays a group to alterits lobbying activities; and (3)
self-regulation
, in which the firm voluntarilylimits the potential social harm from its activities. All three strategies reducetheinformativenessoflobbying,andallreducethepayoffofthepublicdecision-maker. We show that the decision-maker would benefit by requiring the publicdisclosure of funds spent on astroturf lobbying but that the availability of alternative influence strategies limits the impact of such a policy.
1. Introduction
The role of interest groups in politics has held a long-standing fasci-nation for political economists. In the 1780s, James Madison famouslywarned of the power of “factions” in
The Federalist
, while nearly200 years later Mancur Olson and George Stigler elevated the study
We would like to thank two anonymous referees and participants in a number of seminars for their helpful comments, including the 2002 Strategy and the BusinessEnvironment Conference at Stanford University, Cambridge University, Katholieke Uni-versity of Leuven, the University of Bonn, the 21st Rutgers Workshop on Public UtilityRegulation,theSecondWorldCongressoftheAssociationofEnvironmentalandResourceEconomists, University of Victoria, Resources for the Future, Indiana University, andHarvard University.
c
2004 Blackwell Publishing, 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington Road,Oxford OX4 2DQ, UK. Journal of Economics & Management Strategy, Volume 13, Number 4, Winter 2004, 561–597
 
562
Journal of Economics & Management Strategy
of interest group politics to an important sub
eld within economics.
1
Pioneering theoretical work in the Chicago School tradition treatedinterest group
pressure
as a production function, smooth and twicecontinuouslydifferentiable.
2
Inthisframework,interestgroupscompeteto apply more pressure in a game where rival pressure inputs arestrategic complements. More recently, theorists have been opening upthe black box of political pressure to focus more explicitly on speci
cstrategies such as campaign contributions or lobbying.
3
Severalrecentpapersshednewlightontheroleoflobbyingincon-veying
soft,
i.e.,unveri
able,informationtopublicdecision-makers.
4
In these models, interest groups may be able credibly to transmit softinformation about the state of the world if their preferences do notdiverge too greatly from those of the decision-maker. This recent work,however,typicallydoesnotdistinguish
rmsfromotherspecialinterestgroups.Wearguethatinmanylobbyingsituations,
rmscannotconveyunveri
ableinformationcrediblybecausetheirpayoffsdependonlyonthe policy imposed by decision-makers and not on the underlying stateof the world. In the case of local environmental issues, for example,the relevant state of the world is the environmental damage done by aparticularpollutant,whichoftenisunknowntopolicymakers.However,environmental regulations often require
rms to use the
 best availablecontrol technology,
the cost of which is independent of the state of the world. Does this mean the
rm is impotent in such situations, orare there other strategies it can employ to in
uence the informationdecision-makersreceive?Whatimpactmightthesealternativestrategieshaveonpublicdecision-making?Existingmodelsshednolightonthesequestions, since they do not distinguish between the
rm and otherinterests involved in transmitting soft information to decision-makers.Inthispaper,wepresentaformalmodeloflobbyingasameansof transmitting unveri
able information and clearly distinguish the
rmfrom other special interest groups. We show that while the
rm is not
1. Olson(1965)elaboratesarationalchoicemodelofinterestgroupaction,whileStigler(1971) applies this approach to the study of regulation speci
cally.2. KeyearlypapersincludethoseofPeltzman(1976)andBecker(1983).Forananalysisof self-regulation that builds on this literature, see Maxwell et al. (2000).3. For example, Lupia and McCubbins (1994) and de Figueiredo et al. (1999) studyhow administrative procedures can be designed to optimize the
ow of information topoliticians, and Baron (2001) develops a model in which activists attempt to in
uencecorporate strategy via the threat of consumer boycotts. Kollman (1998) studies themotivations and strategy behind lobbying behavior based on detailed interviews with 90interest group leaders. Grossman and Helpman (2001) provide an excellent introductionto the recent theoretical literature on interest group politics.4. See, for example, Lohmann (1993) and Krishna and Morgan (2001). These models,which build on the seminal work of Crawford and Sobel (1982), must be distinguishedfrommodelsoftheprovisionof 
hard,
veri
ableinformation,asanalyzedinpaperssuchas Milgrom and Roberts (1986).
 
 Astroturf: Interest Group Lobbying and Corporate Strategy
563
a credible source of such information, it nevertheless can in
uencethe lobbying behavior of other interest groups through a variety of strategies. The decision-maker initially is uncertain of the state of theworld and desires full information so that he can match the stringencyof policy to the severity of the state of the world. The
rm, however,has incentives to manipulate the
ow of information to the decision-maker. We explore a series of corporate strategies that impede the
owof information to the decision-maker, show that the decision-maker isharmed by these strategies, and identify public policies that hinder the
rm
s ability to engage in them.Most prominent among the strategies we consider is the fundingof 
astroturf lobbying
, a term coined by Lloyd Bentsen, long-time senatorfrom Texas, to describe the arti
cial grassroots campaigns created bypublicrelations(PR)
rms(StauberandRampton,1995,p.79).Onesuch
rm is Davies Communications, whose advertising says,
Traditionallobbying is no longer enough. Today numbers count. To win in thehearing room, you must reach out to create grassroots support. Tooutnumber your opponents, call the leading grassroots public affairscommunicationsspecialists
(StauberandRampton,1995,p.90).Daviesexplains how his
rm generates a
grassroots
letter-writing campaignthrough the use of telephone banks:We get them on the phone, and while we
re on the phonewe say
Will you write a letter?
Sure.
Do you have timeto write it?
Not really.
Could
we
write the letter for you?I could put you on the phone right now with someone whocould help you write a letter. Just hold, we have a writerstanding by
...
If they
re close by we hand-deliver it. Wehand-write it out on
little kitty cat stationery
if it
s a littleold lady. If it
s a business we take it over to be photocopiedonsomeone
sletterhead.[We]usedifferentstamps,differentenvelopes. Getting a pile of personalized letters that have adifferentlooktothemiswhatyouwanttostrivefor(Stauberand Rampton, 1995, p. 89
91).OneexampleofastroturflobbyingisthegroupPeoplefortheWest!(PFW!)whichcharacterizesitselfas
agrassrootscampaignsupportingwestern communities.
In 1992, 96% of the group
s funding camefrom corporate sponsors such as NERCO Minerals, Cyprus Minerals,Chevron, and Hecla Mining, who have strong interests in maintainingtheGeneralMiningActof1872thatallowsthemtoacquireandtominepublic lands at a cost of $5 per acre. The chair of PFW!, Bob Quick,is the national director of state legislative affairs for Asarco, a mining

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