Contested Compromise: Public Policy Reforms as Share Contests

Abstract

Public policy reforms often benefit certain societal groups while being costly for others. Both supporters and opponents of reforms can form lobby groups to influence the policy outcome in their preferred direction. This paper presents a simple two-stage model of a public policy reform that results from the partial implementation of a policy proposal. The compromise is modeled as a share contest. I analyze the influence of lobby groups on equilibrium policies and how regulators' preferences for lobbying activities influence the policy proposal. The results show that in regimes where these activities are regarded as harmful, lobby efforts lead to modest reform proposals and equilibrium reforms, whereas in regimes where regulators favor lobbying activities the levels of reform proposal and resulting policy are higher. Interest groups that suffer costs from the reform are always better off in regimes that regard lobbying as harmful, whereas groups that profit from a reform can be better off with regulators that favor lobby contributions.