Structural Power and Public Policy: A Signaling Model of Business Lobbying in Democratic Capitalism

Abstract

This paper develops a signaling model of corporate lobbying in democratic capitalist societies to analyze the conditions that lead to a powerful political position of business. Proceeding from the traditional dichotomy of structural economic determinants versus business' political action, our model predicts the conditions under which elected political decisionmakers modify their policy pledges to accommodate business' political preferences, or override business' lobbying messages and honor their pledges. Our results show that the structural power of business over public policy is contingent on two variables: the size of reputation costs of business in relation to its material costs of lobbying; and the ratio of the policymaker's reputation constraints from policy commitments and campaign pledges to the electoral costs arising from adverse effects of policy. We evaluate our model using case studies of business lobbying on environmental and financial services regulation in Britain and Germany.