Brand-name investment of candidates and district homogeneity: an ordinal response model.

• Author: Yen, Steven T.

1. Introduction

   Advertising is often viewed as a sunk investment that will receive a return only if firms do not cheat their customers on quality, much like a security bond that will be lost for non-performance of a contract. In the last period a firm will cheat if there is no future return from the investment [15]. Knowing that a firm is in it last period will then reduce sales in the last period to zero, so the firms will begin to cheat the period before the last. This is the usual iterated prisoner's dilemma (PD) game with a finite life; cheating begins in the first period and continues. Demsetz [10] argues that since firms are transferable through voluntary trade, the possibly infinite life of a firm transforms this finite, iterated PD game with a known end into an iterated PD game with no known end. As Axelrod [1] suggests, the best of the known strategies for this game is the tit-for-tat strategy. In this game, firms live up to quality claims if customers continue to pay for their product. Demsetz also argues that brand name cannot serve as a barrier to entry for alienable firms because the firm, with its brand name intact, can be purchased by buyers who are more efficient producers than the current producer.

   Since professionals and politicians who have made investments in brand name have namebrand capital that is inalienable, these markets may suffer from the last-period problem [12; 17; 18; 19]. If the seller knows the last period because he intends to quit, cheating cannot be prevented by investment in brand-name capital. Still, uncertain ending periods may be enough to insure that the seller will produce at the advertised quality if buyers determine the final period [29]. V

   Lott [18] has incorporated brand-name entry barriers into a model analyzing competition for legislative seats. Though Lott fundamentally accepts Demsetz's [10] critique of entry barrier analysis, Lott points out that Demsetz's reasoning does not hold in cases where the producer is not an ongoing enterprise, where the producer is a single individual, not a firm. Political brand-name investment erects a barrier to entry because this capital is not transferable.

   Nelson [24; 25] distinguishes between the "search" and "experience" qualities in a good. Search qualities are those that can be discovered in the search process before purchase, and experience qualities are those that can be discovered only after purchase, as the product is used or consumed.

   Nelson [26] argues that the repeat-purchase mechanism gives candidates some incentive to be truthful in their advertising. Further, the candidate has an incentive to direct his advertisement to those who would most likely vote for him, if they knew his position. Telser [29] and Ferguson [11] suggest that candidates are experience goods and so the voter knows that he cannot trust the politician to be completely honest and forthcoming. The voter instead relies on experience with that candidate (brand) or relies on trustworthy judges of candidates that act as agents for voters, i.e., the political party allowing its brand name to be used by the candidate.

   The incumbent's advantage stems partially from his fund-raising advantage, which can be translated into advertising that builds brand-name capital. This fund-raising advantage cannot be translated into an advertising advantage for a candidate in a politically diverse district if the candidate is a search good [8; 12; 29]. These candidates' positions are well known and a greater amount of funds raised is viewed as a greater debt owed by the candidate to some supporting group: a group which some will oppose in diverse districts. Advertising becomes a signal about the level of debt owed to some interest group, which signals a worse buy; not a better buy, as is true if the candidate were an experience good. In homogeneous districts, investment in brand V name, by making the candidate's positions known to the constituency increases his expected vote margin and decreases the chance that a rival will come forward [8; 12; 29]. On the other hand, such investment in heterogeneous districts increases both the support and the opposition to the candidate.

   Since the difference between search and experience goods depends on the cost of measuring the quality of a good before and after purchase, this cost difference can be changed by new technology and new institutions. Crain and Goff [8] examine the televising of legislatures, which is found in many, but not all, states. Crain and Goff postulate that politicians will be search goods in the states where legislatures are widely televised but will experience goods where they are seldom televised. They test their hypothesis using 1976 state house and senate races by stratifying their sample into high television exposure states and low television exposure states. Crain and Goff use population per seat as a measure of political diversity, reasoning that larger populations will be more diverse. To test their hypothesis, they regress population per seat, the number of multi-member districts, and seats up for election against number of winning challengers. They find that as population per seat increases, challengers win more often in high exposure states than in low exposure states. They interpret this result as support for the hypothesis that politicians are experience goods where the cost of information is high and search goods where the information costs are low.

   Fremling and Lott [12] argue that politicians are not experience goods since investment in brand name will not prevent cheating due to the existence of the last-period problem. This prevents conspicuous investment in brand name from serving as a guarantee that the politician will not act contrary to his public political promises. They argue instead that politicians are search goods because voters learn the politician's utility function before any expected last period.

   Brand name is not the only factor that may discourage challengers from coming forward in an election. More efficient production by a provider may keep potential entrants our of a market. This type of advantage and barrier is welfare enhancing. One example of this type of barrier is the advantage of tenure of the candidate that is not due to his sunk investment but to his investment in human capital through experience on the job. Other advantages, which we associate with brand name, may be due less to the candidate's efficiency and more to his sunk investment in goodwill.

   In this paper we empirically explore the brand-name barriers to entry in British Parliamentary contests. Political entry barriers have previously been examined [6; 7; 16; 30]. We examine the effect on competition of important measures of brand-name investment identified elsewhere [3] and include measures of political diversity. Our measure of competitiveness is the excess of the number of candidates over the number of seats available. In the next section, we examine the consequences of information-cost differentials between British rural districts and urban districts in the last century. The third section discusses political diversity and brand-name advantage. Then, the data set is described, and the variables used in the empirical section are discussed. The fifth section presents a discussion of ordinal probit and ordinal logit models used to analyze the data and test our hypothesis. The results of the ordinal response models are discussed in the sixth section, including a test between the ordinal probit and ordinal logit specifications for our model.

2. The Cost of Standing and the Cost of Information

   In Britain from 1832, the average cost of standing for a county seat was roughly 20,000 pounds in 1980 pounds, while a borough seat cost only about one-half that much [27]. Candidates paid more to run for county seats than for borough seats, though there were no residency requirements and county Members of Parliament (M.P.'s) lacked greater legislative powers than the borough M.P.'s. Also, neither the county M.P. nor the borough M.P. was paid a salary.(1) Why did candidates consistently pay twice the price of a borough seat to present a county district? One explanation is that the county seat was more secure than the borough seat [2]. The rural...