An Information Rationale for the Power of Special Interests

Abstract

Political decisions are often biased in favor of special interests at the expense of the general public, and they are frequently inefficient in the sense that the losses incurred by the majority exceed the gains enjoyed by the minority. This article explains the bias in terms of information asymmetries and the free-rider problem. First, incumbents increase their reelection prospects by biasing policy toward groups that are better able to monitor their activities. Second, because smaller groups are better able to overcome the free-rider problem of costly monitoring, policy will be biased in their favor. Third, the effect of asymmetric monitoring on voter welfare is ambiguous. The inefficiencies created by the policy bias are offset by a positively valued selection bias: Incumbents of above-average quality are more likely to survive voter scrutiny than are low-quality types.