Doing More for Less? New Evidence on Lobbying and Government Contracts

IMF Working Papers, August 9, 2019

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Canonical URL: Doing More for Less? New Evidence on Lobbying and Government Contracts

Core question: Why do firms lobby?
Natural experiment exploited: the unanticipated sequestration of federal budget accounts in March 2013 that reduced the availability of government funds disbursed through procurement contracts.
Mechanism examined: how changes in federal procurement funding availability affected firms' lobbying spending depending on their exposure to the sequestered accounts.

Firms with little or no prior exposure to the federal accounts that experienced cuts:
- Reduced their lobbying spending following the March 2013 sequestration.
Firms with a high degree of exposure to the cuts:
- Maintained and even increased their lobbying spending following the sequestration.
Interpretation:
- When the same number of contractors competed for a piece of a reduced pie, more-affected firms likely intensified lobbying to distinguish themselves and improve chances of securing a larger share of the smaller overall procurement pool.
Heterogeneity and robustness:
- Findings are stronger in government-dependent sectors.
- Findings are stronger when there is intense competition.

The evidence is more consistent with a rent-seeking explanation for lobbying (i.e., lobbying aimed at securing a larger share of public procurement when total funds are reduced) rather than solely productive or informational motives.

Subject: Asset and liability management, Asset valuation, Competition, Expenditure, Financial markets
Keywords: Asset valuation, Competition, firm level, firms switch, government spending, industry concentration, level competition, lobbying, natural logarithm, Political connections, procurement, rent seeking, sequester ratio, sequestered firm, WP