The Lion’s Share: Evidence from Federal Contracts on the Value of Political Connections

Abstract

We examine the role of political connections in receiving federal funds during an unexpected surge in government defense spending. While the data do not allow identification of a causal link, the analysis shows that politically connected firms were awarded larger amounts in federal contracts when available funds increased. Defense contracts awarded to firms that lobbied were around onethird higher than contracts awarded to firms that did not lobby. Similar evidence holds for campaign contributions and board connections. The increase in the contract amount is observed primarily for firms with limited ability to efficiently support the Pentagon’s efforts and when contracts received less scrutiny. Between political connections and merit as potential channels to affect government contracting, the results mainly, but not exclusively, support the first channel.