Consumption or Investment? on Motivations for Political Giving∗

Abstract

We propose a strategy to distinguish investment and consumption motives for political contributions by examining the behavior of individual corporate executives. If executives expect contributions to yield policies beneficial to company interests, those whose compensation varies directly with corporate earnings should contribute more than those whose compensation comes largely from salary alone. We find a robust relationship between giving and the sensitivity of pay to company performance, and show that the intensity of this relationship varies across groups of executives in ways that are consistent with instrumental giving but not with alternative, taste-based, accounts. Together with earlier findings, our results suggest that contributions are often best understood as purchases of “good will” whose returns, while positive in expectation, are contingent and rare. Do individuals give political contributions simply because they derive an expressive or other consumption benefit from doing so? Or are they attempting to influence policy outcomes? If the consumption view is correct, then political donations are just another means by which citizens participate in the political process (unequal to be sure – see Verba, Schlozman, and Brady 1995), and need not imply improper or undemocratic influence. In contrast, donation decisions that are driven by an investment motivation, especially when they are made on behalf of small but economically powerful minority interests, naturally raise concerns about the possibility of an undemocratic exchange of policy for dollars (Grossman and Helpman 2001, Schattschneider 1960). Despite the intuitive plausibility of these concerns, the empirical record on the association between policy change and the funding of individual candidates falls short of unequivocal or robust. The ambiguous status of that record is further underscored by the small size of the vast majority of contributions – on average about $115 per check in recent elections. Taken together, these facts point to the consumption account as a superior explanation for why people give (Ansolabehere, de Figueiredo, and Snyder 2003). While the consumption interpretation appears consonant with the apparently haphazard behavior of the average contributor, two critical considerations should lead one to question whether the matter is, for all intents and purposes, closed. First, from the standpoint of the effects of contributions on democratic accountability, the behavior of common contributors does not seem to be the major object of concern. A far more significant issue is the behavior of the small minority of contributors who control disproportionately large shares of society’s resources, and the potential relationship between that behavior and the choices of elected officials. Second, as we discuss in detail below, the search for legislative action on behalf of donors is hampered by the relevant parties’ incentives to obscure it. In this paper, we propose and implement a strategy to disentangle the motives of contributors in light of these considerations. The intuition is as follows: If individuals perceive investment value in their political contributions, we should expect to find differences in their propensity to make them corresponding to differences in their valuations of the potential benefits of those contributions (controlling for their ability to afford doing so). The presence of such a correspondence would allow us to conclude that their behavior must exhibit an investment motive. To implement this strategy, we investigate the political contributions of a sample of executives from Standard and Poor’s (S&P) 1500 firms. Government policies often have profound implications for firm profitability. If, responding to this, executives perceive contributions as investments with potential pecuniary return, we should observe an association between their contribution behavior and the sensitivity of their income to changes in firm profitability: the greater that sensitivity, the more likely the executive will give and, conditional on giving, the larger her contributions should be. Our empirical results provide robust evidence of this relationship, which persists even given controls for executive-specific attitudes toward risk, wealth and income effects, and stock volatility. Further, the incentives we identify lead us to expect that the relationship itself between executives’ contribution behavior and the sensitivity of their income to firm performance varies with specific, measurable characteristics of those executives. The empirical evidence in support of these predictions further bolsters our identification of the main finding with the investment-based causal mechanism, rather than its alternative interpretations consistent with specific variants of the consumption account. Political Contributions and Instrumental Benefits Investment in the Political “Marketplace” Previous work on the role of campaign contributions has suggested several ways in which contributions might affect policy outcomes and thus produce returns on such investments. The most prominent of these include promotion of the electoral success of sympathetic recipients (Poole and Romer 1985); quid-pro-quo purchases of legislative votes, legislative pressure on regulatory agencies, or other forms of constituency service (Aranson and Hinich 1979; Baron 1989; Grossman and Helpman 1994, 2001; Snyder 1990 ); and buying access for an opportunity to make donor concerns known to legislators directly (Hall and Wayman 1990; Langbein 1986). While each of these causal mechanisms is appealing, two prominent and robust findings

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Cite this paper

@inproceedings{Gordon2007ConsumptionOI, title={Consumption or Investment? on Motivations for Political Giving∗}, author={Sanford Clark Gordon and Catherine Hafer and Dimitri Landa and Ethan Bueno de Mesquita and Alan S. Gerber and Gregory A Huber and Nolan McCarty}, year={2007} }