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A Dynamic Analysis of Special Interest Politics and Electoral Competition

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Abstract

This paper characterizes the solution to differential games in the context of electoral competition between two political parties/politicians, in the presence of voters and a special interest group. The basic structure of the analytical model is similar to Lambertini (https://amsacta.unibo.it/4884/1/415.pdf, 2001, Dynamic games in economics. Springer, Berlin, pp 187–204, 2014), which is extended to model the involvement of a special interest group. Furthermore, voters not only vote but also care for the level of public good provision, while the interest group cares for the regulatory benefit in exchange for financial contribution for campaign expenditure. With a quadratic cost structure, we find that a closed-loop solution collapses to an open-loop equilibrium. Moreover, at the private optimum, the expenditure offered for public good provision, regulatory benefit rendered, voting support from voters, and financial contributions from special interest group received by any political party are always higher than at the social optimum. That is, political parties have the tendency to make excessive offers of expenditure on public good to grab a larger vote share to win the election. Consequently, voters vote retrospectively to the party that offers to overspend more. A higher private optimal regulatory benefit helps the political parties to receive higher financial contributions, which could be potentially used for election campaigns and indirectly contributes to enhance their vote share. The solutions to the control and state variables constitute steady-state saddle point equilibria at both private and social optima.

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Notes

  1. The trio—Julius Caesar, Crassus, and Pompey—formed a group famously known as ‘the triumvirate,’ and they ruled the Roman Empire for many years. Crassus is also considered as one of the wealthiest in the world history in general, and Roman Empire in particular. In return, according to Plutarch, both Crassus and Pompey got tax breaks and land grants. In particular, Crassus accumulated a lot of wealth and power, a vast sum of 7,100 talents, had extensive real estate interests, and owned silver mines. He owned a huge number of slaves and had enormous wealth that he could fund his own army.

  2. When the length of the electoral period is given (that is, the date of election is known), Nordhaus [44] relies on a discount factor, \(\mu \), which is positive, and calls it a decaying memory, where the recent pains are more painful than the past. Lambertini [37] also uses the discount factor \(\rho \) in the value function as negative and refers to the future date as more relevant than today, whereas for a given electoral period, Gavious and Mizrahi [22] work without any discount factor and state that if the date of election is sufficiently away, the party in power should invest the resources constantly.

  3. Even if \(\rho \) exceeds \(\alpha _{2}\) and \(\beta _{2}\), \(\Delta (J)>0\)

  4. If the Pontryagin-type necessary conditions for open-loop Nash equilibrium do not depend on the state variables, then the open loop Nash equilibrium, if it exists, is a degenerate feedback Nash equilibrium.

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Acknowledgements

We would like to thank Sugata Dasgupta, Amlan Gupta, Sonali Roy, Debabrata Pal, and two anonymous referees for detailed comments as well as the audience for their valuable comments at the Third International Conference on South Asian Economic Development—2017 at the South Asian University, February 23–24, 2017, New Delhi, and the Papers in Public Economics and Policy (PPEP)—2017 Conference at the National Institute of Public Finance and Policy, March 23–24, 2017, New Delhi.

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Authors and Affiliations

  1. Gargi College, University of Delhi, New Delhi, 110049, India

    Ganesh Manjhi

  2. Centre for International Trade and Development, School of International Studies, Jawaharlal Nehru University, New Delhi, 110067, India

    Ganesh Manjhi & Meeta Keswani Mehra

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  1. Ganesh Manjhi
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Correspondence to Ganesh Manjhi.

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Manjhi, G., Mehra, M.K. A Dynamic Analysis of Special Interest Politics and Electoral Competition. Dyn Games Appl 9, 142–164 (2019). https://doi.org/10.1007/s13235-018-0241-2

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