The Informational E¤ects of Competition and Collusion in Legislative Politics1

Abstract: We use a mechanism design approach to study the organization of interest groups in an informational model of lobbying. Interest groups in-uence the legislature only by communicating private information on their preferences and not by means of monetary transfers. Interest groups have private information on their ideal points in a one-dimensional policy space and may either compete or adopt more collusive behaviors. Optimal policies result from a trade-o¤between imposing rules which are non-responsive to the groupspreferences and exibility that pleases groups better. Within a strong coalition, interest groups credibly share information which facilitates commu-nication of their joint interests, helps screening by the legislature and induces exible policies responsive to the groupsjoint interests (an informativeness e¤ect). Competing interest groups better transmit information on their in-dividual preferences (a screening e¤ect). The socially and privately optimal organization of lobbying favors competition between groups only when their preferences are not too congruent with those of the legislature. With more congruence, a strong coalition is preferred. Finally, within a weak coalition, interest groups must design incentive compatible collusive mechanisms to share information. Such weak coalitions are always ine ¢ cient