The economics of campaign funds

Abstract

We have sketched a theory of campaign funds. Some funds are supplied by contributors on aquid pro quo basis in exchange for political influence. This supply of funds is actually the demand for influence and is determined by their VMP, which is affected by government discretionary power, by probability of receiving the desired influence, and by the concentration of the beneficiaries. Another supply of funds is actually the demand for “righteousness” and is determined by the MP of a campaign dollar in electing candidates with the desired stands. The demand for funds by politicians is determined by their marginal product in terms of votes. The theory, furthermore, predicts that campaigns will spend themselves into debt because of the fixed-pie nature of the production function. Owing to limited space, only data on the production function was analyzed. Specification for the 1972 Congressional data included as independent variables expenditures of both parties, incumbency variables, and the Nixon vote in 1968. The Republican vote percentage was the dependent variable. This specification explained two-thirds of the variance in the Senate races and four-fifths in the House races. The MP schedule of expenditures was found to slope sharply downward, which constitutes a major argument for public financing of campaigns.