Is lobbying detrimental to social welfare?

According to Ball (1995), it is widely recognized that lobbying can adversely affect social welfare, by compelling policy-makers to enact policies that are favorable to the lobbying interest groups but harmful to society at large. However, if lobbying is a form of strategic information transmission, from the lobbyist to the policy maker, where the transmitted information is relevant to policy making, then lobbying can also be a welfare improving enterprise (Lagerlöf, 1997).

If we consider a model where there are only three players: two interest groups (one of which can lobby while the other cannot) and the government (which can redistribute income between the two groups), then, even if lobbying is exclusively an enterprise of information transmission, it does not necessarily improve welfare. In fact, the opportunity to lobby provided to the lobbying group, may make it worse, and not better off. In which case, the government, whom it is lobbying, may also be worse off; as could the other interest group which does not have the opportunity to lobby. In such a scenario lobbying clearly has a negative impact on social welfare, at least by the Pareto criterion (Lagerlöf, 1997). In a more optimistic consequence of the same model, the lobbying interest group still ends up being worse off from its lobbying activities, while the non-lobbying interest group and the government end up better off (Lagerlöf, 1997). Also, it is possible that as a consequence of lobbying, the lobbying interest group will be better off, the government will also be better off, but the non-lobbying interest group will be worse off (Lagerlöf, 1997).

In another model (Ball, 1995), the government needs to choose various policies from among alternatives. Interest groups have their own preferences from among these alternatives, but the government doesn’t know well which ones they really are. In an attempt to have the government choose the policies they prefer, interest groups offer the government cash transfers or political support depending on the policies that it will choose. In response the government attempts to maximize its utility by choosing policies which will bring it the greatest net benefit in terms of social welfare (one of its objectives) and cash transfers or political support from interest groups (Ball, 1995).

According to this second model, lobbying will lead to both social welfare-reducing policy distortions and to the conveyance of socially valuable information to the government, but to various degrees, depending on several conditions. More specifically, the model predicts that the welfare-reducing policy distortions will predominate if the government is highly self-interested or if the lobbying is very heavy. On the other hand, the conveyance of socially valuable information to the government will predominate if the various interest groups, engaged in lobbying, have highly different preferences or if the true preferences of interest groups are poorly known to the government before the start of lobbying (Ball, 1995).

References

Ball, R. (1995). Interest groups, influence and welfare. Economics and Politics 7, 119-146.

Lagerlöf, J. (1997). Lobbying, information, and private and social welfare. European Journal of Political Economy 13, 615-637.