Electoral Incentives, Informational Asymmetries, and the Policy Bias Toward 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 paper provides an explanation based on informational asymmetries and the free rider problem: (i) incumbents increase their chances of re-election by biasing policy toward groups that are better able to monitor their activities; and (ii) smaller groups are better able to overcome the free rider problem of costly monitoring so that policy will be biased in their favor. A welfare analysis examines the effect of asymmetric monitoring on voter welfare. 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.