Preemption contests between groups

• Published date: 01 September 2020
• Author: David A. Malueg,Kai A. Konrad,Stefano Barbieri
• DOI: http://doi.org/10.1111/1756-2171.12345
• Date: 01 September 2020

RAND Journal of Economics

Vol.51, No. 3, Fall 2020

pp. 934–961

Preemption contests between groups

Stefano Barbieri∗

Kai A. Konrad∗∗

and

David A. Malueg∗∗∗

Weconsider a preemption game between competing groups; firms lobbying individually for their

groups’ interests provide an empirical example. Among symmetric groups, the first firm to take

action bears an (unobserved) cost and wins the prize on behalf of its group. In equilibrium, the

firm with the lowest cost takes action, but with delay. More competition and a smaller ratio of

costs to benefits reduce delay. Firms in larger groups wait longer, but group action can occur

earlier, as the probability of a low-cost firm is higher. Asymmetries in group size or strength of

externalities also matter.

1. Introduction

We study incentives and equilibrium behavior when members of a group can preempt other

groups on behalf of their own group. In such a framework, group members’ free-riding incentives

inside the own group conflict with preemption motives that apply in the inter-group competition.

Each player prefers that his group preempts the other groups, but that another member of his

group is the preempting player who bears the costs of the preemptive action.

As an illustrative example, consider two industries, both of which can press a policy to im-

plement trade regulations in their favor. The CEOs of the companies of these two industries may

take action on behalf of their own groups: for example, when they talk to influential politicians,

they can explain why such protection policies are necessary for their industry.Similar considera-

tions apply to other lobbying contexts. Yackee (2019) surveys the general literature on the politics

of rule making. She alludes to Yackee (2012) who finds that “off the public record” communi-

cation between lobbyists and regulators may influence regulatory rules at an early preproposal

∗Tulane University;sbarbier@tulane.edu.

∗∗Max Planck Institute for Tax Law and Public Finance; kai.konrad@tax.mpg.de.

∗∗∗University of California, Riverside; david.malueg@ucr.edu.

The authors thank participants of the SCNU Workshop (Guangzhou, September 22–23, 2017), PET 2018 (Hue, August

6–8), SAET 2018 (Taipei June 11–13), CEPET 2018 (Udine, June 28–29), SEA 2018 (Washington,DC, November 18–

20), and PET 2019 (Strasbourg, July 9–11), the editor and two reviewers of the Journal for helpful comments. The usual

caveat applies.

934 © 2020 The Authors. The RAND Journal of Economics published by Wiley PeriodicalsLLC on behalf of The

RAND Corporation This is an open access article under the terms of the Creative Commons Attribution-NonCommer-

cial-NoDerivs License, which permits use and distribution in any medium, provided the original work is properlycited,

the use is non-commercial and no modifications or adaptations are made.

BARBIERI, KONRAD AND MALUEG / 935

stage: early lobbying can have an agenda-setting role. As access to decision makers is a scarce

resource and the mental readiness and receptiveness of politicians are limited, volunteering on

behalf of one’s own industry also has an opportunity cost: the CEO cannot use this opportunity

to lobby for a more firm specific interest, for instance. In the absence of competition from other

industries, a CEO may prefer to pitch for his or her own company interests and hope that other

CEO colleagues will stand up for the interests of their industries. CEOs can meet politicians in

different forums.1Company leaders can also be members of the entourage of prime ministers

or governors on important state visits and travel with them in their government jets.2Influence

attempts might rarely become public. An exception is “the memo…written by Robert E. Mur-

ray, a longtime Trump supporter who donated $300,000 to the president’s inauguration. In it,

Mr. Murray, the head of Murray Energy, presented Mr. Trump with a wish list of environmen-

tal rollbacks just weeks after the inauguration.” (Friedman, 2018.) This wish list, dated March

2017 and organized in order of priority, starts with the elimination of the Clean Power Plan, the

overturning of the “endangerment finding for greenhouse gases,” the elimination of tax credits

for solar and wind energy producers, and the withdrawal from the Paris Climate Agreement. It

is clear that the priorities identified by Mr. Murray benefit the entire fossil fuel industry, rather

than just the coal plants owned by Murray Energy. From a theoretical point of view, the CEOs’

problem describes a waiting game as analyzed in Bliss and Nalebuff (1984) and Fudenberg and

Tirole (1986). The incentives change if there is competition between industries for trade policy

favors, as we assume.

It is useful to relate our illustrative example to the approaches that describe lobbying in the

literature.3A first branch of the literature starting with Olson (1965) focuses on the relationship

between resources mobilized and policy influence. Grossman and Helpman (1994) suggests a

menu-auction approach as a formal description of this allocation problem. A second branch of

the literature considers the role of lobbies as experts and the problem of strategic information

transmission (Austen-Smith and Wright, 1993; Cotton and Déllis, 2016) and distinguishes be-

tween buying access and issues of asymmetric information (Austen-Smith, 1995; Cotton, 2012).

A third branch of the literature focuses on the use of informal relationships and connections

to obtain access. The relationship between a firm’s CEO and a politician may be at a personal

level.4But it may also be the case that a firm’s CEO decides to “hire” a lobbyist with the needed

connections.5

An important aspect is the role of group mobilization. Olson (1965) emphasized the

free-riding problems of interest groups. This topic is recurrent in the literature on rent-seeking

between groups (Katz, Nitzan, and Rosenberg 1990, Esteban and Ray 2001). The theory of

Grossman and Helpman (1994) elaborates on a framework that takes lobbies as unitary players.

Martimort and Lefevre (2019) advance these theories focusing on the role of information

asymmetries inside interest groups for whether and how they overcome free-riding incentives.

Recently, researchers also found substantial evidence that illustrates that single large firms often

take action directly and on their own (Bombardini and Trebbi 2012, Kim and Osgood 2019),

particularly if firms in an industry are sufficiently heterogeneous, offering examples of special

interests influencing policy outcomes, but without formation of a lobby.

Of course, the realities of lobbying are very complex, and no single theoretical model

can capture all of its facets. We view our model as focusing on relationships and access in a

1An illustrative exampleis US President Donald Trump’s Manufacturing Council and the Strategy & PolicyForum,

both of which he founded early in 2017.

2For a description of such missions see, for instance, the report by WashingtonGovernor Jay Inslee Staff (2017).

3Here we partially follow Rodrik (1995) and Groll and McKinley (2015). Forgeneral reviews on special interest

group and lobbying activities, see Olson (1965), Grossman and Helpman (2001) and Hall and Deardorff (2006).

4This is common in Russia and other transition economies (see, e.g., Frye, 2002). Studies of politically connected

firms are also common, and we refer to Kerr, Lincoln, and Mishra (2014), who list several.

5Connections to politicians are key and well-rewardedin lobbying, see, for example, Wise (2007), Bertrand, Bom-

bardini, and Trebbi (2014), and Blanes-i-Vidal, Draca, and Fons-Rosen(2012).

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