The market for special interest campaign funds: An exploratory approach

Abstract

The results of our study support the rational behavior theory of political participation. An economic market exists for special interest campaign contributions. Campaign funds will be exchanged if money is important to election outcomes and there is a rate of return for political contributions at least equal to that from alternative forms of investment. Demand factors are important in the campaign funds market. Political candidates are found to substitute private funds for special interest campaign contributions. In general, this study appears to have provided sufficiently useful results based on theoretical expectations, to merit additional research. We consider our analysis to be exploratory. Future research should concentrate on the apparent simultaneity among the ‘productivity’ of campaign funds, the determinants of campaign funds and legislative decision-making. Econometric estimation, however, should not proceed withoui a more formal development of a theory of the collective decision making process. A final note on the implications of our study for campaign finance reform. The Campaign Finance Reform Act of 1975 sought to limit special interest contributions. The imposition of limits on campaign contributions can be considered analogous to artificial controls in other economic markets, Given the imposition of limits, it seems likely that a ‘black market’ in special interest funds will develop. This black market may take many forms: the proliferation of Political Action Committees, the ‘laundering’ of campaign funds, and extra-political payments. Because of the fluid nature of the special interest market, enforcement costs of contribution limits will be extensive. From an enforcement standpoint, additionally, the existence of a special interest black market represents a ‘crime without a victim’. Contribution limits will not reduce the influence of special interest contributors.