RESEARCH ABSTRACTS

“Influencing Agencies through Pivotal Political Institutions”, with Richard Vanden Bergh, Journal of Law, Economics and Organization, 20(2): 458-483, 2004.

We draw on the positive political theory and campaign finance literatures to examine how interest groups allocate influence activities (e.g. monetary donations, lobbying) across multiple government institutions when seeking more favorable agency policy decisions. By modeling agency behavior in the context of legislative oversight, we derive testable predictions about the political conditions under which an interest group will influence a) only the agency, b) the legislature and/or executive instead of the agency, c) the legislature or executive in addition to the agency, in order to induce a shift in regulatory policy. One implication of our conclusions relating to b) and c) is that empirical studies seeking to identify a relationship between electoral campaign contributions and public policy using data on legislative votes are potentially mis-specified.
 

“Policy and Process: A Game-Theoretic Framework for the Design of Non-Market Strategy” with Richard Vanden Bergh, Advances in Strategic Management, 19: 33-66, 2002.

We draw on the Positive Political Theory literature to develop insights into how firms decide whether to lobby legislatures or agencies in order to gain favorable policy outcomes. We present a simple structural model of the interaction between a firm, a legislature, an executive, a court and an agency to illustrate how, even if the agency has responsibility for implementing public policy, the firm will, under the right conditions, lobby the legislature instead to bring about a change in policy. Accordingly, we contribute to the existing non-market strategy literature by incorporating institutional players other than the legislature into the analysis, and by addressing the question of how firms allocate lobbying resources across the different branches of government.
 

“Targeting Corporate Political Strategy: Theory and Evidence from the U.S. Accounting Industry”, with Richard Vanden Bergh.

Using a model of the interaction between a business firm and multiple government institutions (including a regulatory agency, an executive and a bicameral legislature), we develop predictions about how firms target political activities – such as lobbying, grassroots mobilization, coalition building and electoral campaign contributions – at different branches of government when seeking more favorable public policies. The core of our argument is that firms will target their resources at the institutional branch that is ‘pivotal’ in the policy-making process. We find empirical support for our thesis in an analysis of how U.S. accounting firms shifted their political campaign contributions between the House and Senate in response to the threat of new regulations governing auditor independence during the 1990s.
 

“Making Friends in Hostile Environments: Political Strategy in Regulated Industries” with Richard Vanden Bergh.

We examine how regulated firms target their political strategies at multiple government institutions in order to gain more favorable regulatory agency decisions than would otherwise occur. By integrating the corporate political strategy and positive political theory literatures we derive propositions that (a) identify the political and regulatory circumstances that generate hostile environments from the firm’s perspective, (b) delineate the conditions under which firms will employ an indirect strategy (i.e. target legislatures or executives) instead of a direct strategy (i.e. target regulators) to induce changes in regulator decisions; and, importantly, (c) we identify the specific political institutions a firm will target when adopting (b). Even though our structured-interaction approach to the analysis of formal institutions is quite straightforward, we are able to develop a rich set of predictions about firms’ political strategy that can form the basis for future empirical testing.

 

“Nonmarket Strategy Performance: Theory and evidence from U.S. electric utilities” with J.P. Bonardi and Richard Vanden Bergh.

Building on a framework that assesses the attractiveness of ‘political markets’ – where firms transact over public policies with government policy-makers – we develop hypotheses regarding the success or performance of firms’ nonmarket strategies. We propose that the ability of firms to gain more favorable policy outcomes is increasing in the degree of rivalry among elected politicians; the firm’s recent experience with policy-makers; and other firms’ recent experiences; and is decreasing in the degree of rivalry from competing interest groups and the resource base of regulatory agencies. Using data on regulatory filings for rate increases made by the population of U.S. electric utilities over a 13 year period, we find empirical support for our arguments.
 

“Consumer Capture of Regulatory Institutions: The Diffusion of Public Utility Consumer Advocacy Legislation in the United States”, with Richard Vanden Bergh. Forthcoming, Public Choice.

We examine the conditions under which state legislatures in the United States organized public utility consumers during the 1970s and 1980s by creating independent consumer advocates with resources and authority to intervene in public utility rate-making procedures. While economic factors, notably utility fuel cost increases, were important predictors, state political conditions were estimated to have a larger impact on the probability of implementation. We find that the pattern of adoption is consistent with the hypothesis that legislatures deploy institutions as a mechanism for insulating regulatory policies against future reform: in general, Democrat-controlled governments were significantly more likely to implement consumer advocates when they were less certain about being re-elected to office during this period. We find also that the effect of political re-election expectations was particularly acute for the creation of advocates representing solely residential consumers, a relatively disorganized interest group. Our results suggest that legislatures organize and publicly fund interest groups to protect supportive but vulnerable groups against adverse future political environments.
 

“The Deinstitutionalization of Coerced Reforms: The Political Backlash Against Private Infrastructure Investments.” with Witold Henisz and Bennet Zelner.

We investigate the replacement of the traditional state-centered model of electricity industry organization with a market-oriented neo-liberal model in 83 countries. We argue that social actors’ ascription of legitimacy to an institutional replacement is central to the replacement’s survival during the period following its adoption. We find that in adopting countries, governments were more likely to subsequently impede private investors in the industry when the neo-liberal model was deemed to lack legitimacy. We provide empirical evidence on the role of multiple influences that affect the legitimacy of an institutional replacement, including the influence of foreign organizations such as the World Bank and the International Monetary Fund and the behavior of peer countries. Institutional reforms associated with financial support from multilaterals and reforms that diverge from those in peer countries are associated with a higher incidence of ex post government intervention.
 

“Interest Group Representation in Administrative Institutions: The Impact of Consumer Advocates and Elected Commissioners on Regulatory Policy in the United States”, with Pablo Spiller.

We examine the effect of interest group representation in administrative procedures on regulatory policy. We use a unique panel database of rate reviews conducted for U.S. electric utilities during the 1980s to assess how consumer advocates and commissioner selection methods affect Public Utility Commission decisions on utilities’ allowed return on equity (ROE) and rate structures. Since PUC decisions are observed generally only when utilities initiate rate reviews, we estimate a sample selection model that first models the utility’s initiation decision and then corrects for potential selection bias in the population of observed PUC decisions. We find first that utilities tend to postpone rate reviews in states with consumer advocates and elected commissioners. Second, we find that, after controlling for observed and unobserved state characteristics, states with consumer advocates and elected commissioners tend to grant lower ROEs, ceteris paribus. Third, the presence of consumer advocates and elected commissioners impact differently on the structure of rates: consumer advocates are associated with higher residential-industrial rate ratios while elected commissioners are associated with lower residential-industrial rate ratios. Our findings provide statistical support to the hypothesis that institutionalizing interest group representation in agency procedures is one way for legislatures to influence regulatory policies.