Bootleggers, Baptists, and the risks of rent seeking

Abstract

Interest groups ‘caught’ influencing public policy solely for private gain risk public backlash. These risks can be diminished, and rent seeking efforts made more successful, when moral or social arguments are employed in pushing for changes to public policy. Following Yandle’s Bootlegger and Baptist model, we postulate this risk differential should manifest itself in regulatory output with social regulations being more responsive to political influence than economic regulations. We test, and confirm, our theory using data on economic and social regulations from the new RegData project matched with data on campaign contributions and lobbying activity at the industry level.

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Notes

  1. 1.

    See Smith et al. (2011) for a more detailed account of this episode.

  2. 2.

    This is not to say that Occupy Wall Street was universally supported, only that enough lingering animosity remained to generate a notable political movement almost a full 2 years after the initial event.

  3. 3.

    Langer (2010). Citizens United Poll: 80 Percent Of Americans Oppose Supreme Court Decision. The Huffington Post (Apr 19) http://www.huffingtonpost.com/2010/02/17/citizens-united-poll-80-p_n_465396.html. Accessed April 5, 2019.

  4. 4.

    Seitz-Wald (2012). "Everyone Hates Citizens United." Salon. http://www.salon.com/2012/10/25/people_really_hate_citizens_united/. Accessed April 5, 2019.

  5. 5.

    Long and Vousden (1987) explain how this risk may be overcome through sharing rents.

  6. 6.

    The estimated total for campaign spending when Tullock wrote the article in 1972 was around $200 million, while simultaneously hundreds of billions of dollars were available through public expenditures and anti-regulatory efforts (see Ansolabehere et al. 2003, p. 110).

  7. 7.

    The idea that government may pressure firms to spend money fighting regulatory influence is discussed below. If true, this would only deepen the conundrum as firms should be even more willing to spend money towards political influence in order to avoid public backlash.

  8. 8.

    In a common example of adopting inefficient technologies at the local level, the NC Board of Governors “discussed a ‘buy local’ resolution that would require UNC colleges to favor North Carolina venders and products for capital projects, like new building construction and renovating existing ones” (see Hennan 2018).

  9. 9.

    Hillman and Ursprung (2016, p. 130) expand upon this point in the context of manipulating voters, noting that “because of requisites of political accountability, governments engage in purposefully inefficient income redistribution to take advantage of voter ignorance.” The resulting deadweight losses incurred represent the costs associated with keeping voters docile and ignorant of rent seeking. This is consistent with our claim below that there is an implicit moral (or ‘Baptist’) dimension to rent seeking that must be addressed if legislative efforts are to be successful. .

  10. 10.

    For example, Godwin et al. (2006, p. 40) model this element by having policymakers face a cost N of providing the rent, itself informed by the policy environment. They argue, “Public perception may help to determine N if it involves a policy that would attract substantial negative media attention to the policymakers.” Their model indicates that firms will seek out policymakers with a low enough N in order to entice an otherwise reluctant policymaker into the fold. However, greater pressure from other would-be competitors can reduce the marginal investment in political influence.

  11. 11.

    Long and Vousden (1987) arrive at a similar conclusion when rents are shared across groups. Mitigation of risk in particular can increase overall lobbying efforts.

  12. 12.

    As Hopenhayn and Lohmann (1996, p. 208) explain “A political principal who suffers an informational disadvantage vis-a-vis a regulatory agency can nevertheless use information supplied by the media, interest groups, and constituents to monitor whether the agency is acting in her best interests.”

  13. 13.

    Mixon et al. (1994, p. 172) further expand upon this fear of public backlash, noting “overt bribes attract attention and invited regulation, although rent seeking investments will take place even where cash bribes are costly.”.

  14. 14.

    He further adds, “Political ideologies normally include a notion of the good society towards which the actual, naturally imperfect, society should move.”.

  15. 15.

    Aidt (2016, p. 150) notes that “the degree of rent dissipation is much larger with private than with public-good rents.”.

  16. 16.

    Smith and Yandle (2014) discuss at length both types of rent seeking, focusing on social regulation in areas such as alcohol, tobacco, environmental, and health care. They find abundant evidence of rent seeking through social regulation where firms utilize Bootlegger/Baptist coalitions to avoid public outcry.

  17. 17.

    For example, “In a Pew Research Center survey conducted last year, about three-quarters of U.S. adults (74%) said ‘the country should do whatever it takes to protect the environment,’ compared with 23% who said “the country has gone too far in its efforts to protect the environment.” (see Anderson 2017). .

  18. 18.

    Hillman and Ursprung (2016, p. 127) distinguish Tullock’s contributions from Becker (1983, 1985) in modeling the costs of rent seeking noting “Becker’s conclusion was more favorable to an ideology that sees merit in extensive income redistribution.” As a further example MacKenzie (2017, p. 145) explains “In the mainstream environmental economics literature, the objective of regulation has been specified as the maximization of social welfare.”.

  19. 19.

    More recent regulatory activity originating with the efforts of Senator Elizabeth Warren (see Bar-gill and Warren 2008) and culminating in the founding of the Consumer Protection Financial Bureau would seem to belie this assumption. It’s certainly true that Senator Warren has brought greater public scrutiny to an otherwise obscure section of the regulatory landscape. See Smith and Zywicki (2015) for an analysis of the somewhat unique regulatory structure of the CFPB.

  20. 20.

    And as Tullock (1983, p. 165) explains within the context of farm special privileges “An asset that is held at risk is one in which one must put considerable resources into defending.”.

  21. 21.

    For example, it may be that activity meant to influence social regulation is less expensive to produce as it relies more heavily on voluntary efforts. This would only increase the relevant returns to the Bootlegger rent-seeking organization and accordingly make social regulations more worth securing (see Lipford and Yandle 2009).

  22. 22.

    Eventually, of course, gains from social regulation would diminish too as more firms utilize this type of rent seeking. Indeed, in theory, at the margin, the returns should equalize across economic and social regulatory capture, at least as a long-term equilibrium state. This assumes though that the total level of regulation is itself fixed. While we do not test this hypothesis, our reading of the background literature suggests that the size and scope of government is itself a potential variable of influence by special interest groups (see Olson 1982).

  23. 23.

    Congleton (2018, p. 10) notes “The direct sale of public policies is often illegal, because it tends to harm or violate social norms important to voters or other critical supporters.” Hillman and Long (2018, p. 7) reinforce this argument explaining “The resources used in a contest are not generally observable. Moreover, successful rent seekers will in general attribute their rents to their effort and competence, rather than to their success in rent seeking.”.

  24. 24.

    For example, Mixon et al. (1994) attempt to locate rent seeking by comparing the number of sit-down restaurants and public golf courses located in state capitals to other cities with similar income characteristics. Sobel and Garrett (2002) follow this thread by comparing a number of industries that would be necessary to generate rent-seeking activity such as printing services, billboard advertising, radio and television broadcasting, and policy institutes. The trouble in is that “other reasonable factors such as the administrative costs of government and its agencies” would also account for the presence of these industries (p. 130).

  25. 25.

    Aidt (2016, p. 143) describes this as ‘the invertibility hypothesis’ in that by “applying contest theory and assumptions about the behavior of rent seekers, the size of the social cost can be inferred from the value of the contestability rent.”.

  26. 26.

    Our framework also implies that production costs are equal across the two regulatory fronts. If social regulation is less expensive to pursue as we suggested in the above footnote, then its empirical presence would only serve to further validate our overarching hypothesis.

  27. 27.

    The Center for Responsive Politics. (2017). Opensecrets RSS. Combined Federal Campaign of the National Capital Area. http://www.opensecrets.org/industries/slist.php. Visited August 5, 2017.

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McLaughlin, P.A., Smith, A.C. & Sobel, R.S. Bootleggers, Baptists, and the risks of rent seeking. Const Polit Econ 30, 211–234 (2019). https://doi.org/10.1007/s10602-019-09278-2

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Keywords

  • Rent seeking
  • Social regulation
  • Bootleggers and Baptists

JEL Classification

  • A13
  • H42
  • K20