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A MultiDimensional Signaling Model of Campaign Finance

Brendan Daley and Erik Snowberg
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Brendan Daley: Stanford University

No 06-027, Discussion Papers from Stanford Institute for Economic Policy Research

Abstract: We develop a dynamic multi-dimensional signaling model of campaign finance in which candidates can signal their ability by enacting policy and/or raising and spending campaign funds, both of which are costly. Our model departs from the existing literature in that candidates do not need to exchange policy influence for campaign contributions, rather, they must decide how to allocate their efforts between policymaking and fundraising. If highability candidates are better policymakers and fundraisers then they will raise and spend campaign funds even if voters care only about legislation. Voters’ inability to reward or punish politicians based on past policy allows fundraising to be used to signal quality at the expense of voter welfare. Campaign finance reform alleviates this phenomenon and improves voter welfare at the expense of high-ability politicians. Thus, we expect successful politicians to oppose true campaign finance reform. We also show our model is consistent with findings in the empirical and theoretical campaign finance literature.

Keywords: Campaign Finance; Multi-Dimensional Signaling; Repeated Elections (search for similar items in EconPapers)
JEL-codes: D72 D82 (search for similar items in EconPapers)
Date: 2007-02
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