Signaling with Reform: How the Threat of Corruption Prevents Informed Policymaking

Abstract

Lobbying is a potential source of corruption but is also a valuable source of information for policymakers. We analyze a game-theoretic model that shows how the threat of corruption affects the incentives of non-corrupt politicians to enlist the help of lobbyists to make more informed decisions. Non-corrupt politicians face a dilemma because voters cannot always tell whether a politician allows access to lobbyists in order to solicit corruption or to seek information. Thus, unless policy information is valuable enough to risk losing the election to a corrupt opponent, a non-corrupt politician may deny access to lobbyists to signal that she is non-corrupt even though doing so impedes her ability to make good policy. If policy information is particularly valuable, non-corrupt politicians will grant access to lobbyists, but this leaves the voter unable to distinguish between corrupt and non-corrupt politicians. The voter may place greater value on screening out corrupt types or on choosing informed policy, depending on the parameters of the game, so these parameters determine which type of equilibrium is optimal for the voter.