Abstract

"The literature on public choice and political economy is characterised by numerous theoretical analyses of capture of the democratic process by special-interest groups."

Literature rarely addresses the question of relative capture at central and local levels of government. Although questions relate back to founding fathers of America (1787).

This view is that the lower the level of government, the greater the extent of capture by vested interests, and the less protected minorities and the poor tend to be be.

• In the US, it is common for discussion of the need for federal intervention in the protection of minorities in the Civil Rights years, or of the putative regressive consequences of the movement in favour of "states rights"

• It is central to discussions of decentralised mechanisms of "community targeting" in developing countries, in which responsibility for composition and delivery of public services and identification of local beneficiaries is transferred to local governments.

If the conventional presumption is correct, the advantage of decentralisation delivery mechanisms to local governments with access to superior local information would be compromised by greater capture of these programs by local elites.

• Case for such decentralisation would then depend on the resulting trade-off between these two effects

Despite the importance of this issue, not much systematic research appears to have been devoted to assessing the relative susceptibility of national and local governments to interest-group capture. 

This paper describes a model of two-party electoral competition with "probabilistic" voting behaviour and lobbying by special interest groups based on David Baron (1994) and Gene Grossman, Elhanan Helpman (1996) that helps identify determinants of relative capture at different levels of government. These include relative levels of:

• Voter awareness and interest-group cohesiveness

• Electoral uncertainty

• Electoral competition

• Heterogeneity of districts with respect to inequality

• Electoral system

While some of these uphold the traditional Madisonian presumption, others are likely to create a tendency for lower capture at the local level, so the net effect is theoretically ambiguous. This suggests that the extent of relative capture may be context-specific and needs to be assessed empirically.

The Model

Refer to Paper

Basic Results

The paper first provides a benchmark case under which the outcomes of national and local elections exactly coincide. Suppose that:

1. All districts are ex ante as well as ex post identical, in particular, they have the same socioeconomic composition, and the swings in different districts are perfectly correlated.

2. National elections are majoritarian

3. The same proportion of voters in any given class are informed in local and national elections 

4. The rich are equally well-organised at the national and local levels.

Then, the outcome of local and (majoritarian) national elections will exactly coincide, in terms of:

• policy platforms

• campaign spending

• winning probabilities

This result follows directly from expressions obtained above for the objectives of the parties in elections at the two levels.

Now suppose that assumptions (3) and (4) are modified:

1. All districts are ex ante as well as ex post identical, in particular, they have the same socioeconomic composition, and the swings in different districts are perfectly correlated.

2. National elections are majoritarian

3. Voters are better informed at the national level (owing to greater media attention)

4. The rich are less well-organised at the national level (owing to greater size and heterogeneity of the group, or larger communication and coordination costs).

Then assuming (1) and (2) still hold, there will be more capture at the local level.

In particular, the dropping of assumption (4) echoes exactly the Madisonian argument. In order to identify the determinants of relative capture, we therefore subsequently assume that (3) and (4) hold. 

Consider for instance, possible differences in the nature of electoral competition at national and local elections.

• Suppose that the two parties contest both national and local elections, and independent district-specific swings may exist but are drawn from the same distribution across all districts.

• Moreover, the districts have the same socio-economic composition, so they are ex ante homogenous. 

The existence of district-specific swings implies that electoral uncertainty is greater at the local level in the sense of mean-preserving increasing in spread of the swing factor. Under a regularity condition on its distribution (satisfied by a wide class of distributions), this turns out to imply less capture of the dominant party at the local level.

The essential reason is that the dominant party A is less likely to win at the local level, reducing the incentive of the lobby to contriute to its campaign funds. 

The preceding result lies on the assumption that the districts are ex ante homogenous in all respects. Suppose instead