Policy-advising competition and endogenous lobbies

Abstract

We investigate Bertrand competition between experts with different motives for access to a policy-maker. The policy-maker has to implement a policy and can either acquire information himself or hire a biased but well-informed expert. We show that the expert charges a fee if policy preferences are roughly aligned. Otherwise, she pays contributions in order to get the decision delegated—and thus acts as a lobbyist instead of as an advisor—if policy is sufficiently important to her. We then introduce competition from an unbiased career-concerned expert and show that lobbying may occur because of competition. Finally, we determine conditions under which the hiring decision (competition) leads to lower social welfare. Interestingly, hiring (competition from) a good advisor may decrease social welfare if the policy issue is narrow and mainly concerns the policy-maker’s own voters.