Campaign finance and voter welfare with entrenched incumbents

Two candidates compete for elective office. Each candidate has information she would like toreveal to the voters, but this requires costly advertising. The candidates can solicit contributionsfrom interest groups to finance such advertising. These contributions are secured by promises to perform favors for the contributors, should the candidate win the election. Voters understand this and elect the candidate they like best, taking into account their expectations about promises to special interests. There is an incumbency advantage in fundraising, which is sometimes so great that the incumbent faces no serious opposition at all. Introducing partial public financing through matching funds improves voter welfare in districts that have advertising under the decentralized system, while it can reduce welfare in other districts. The optimal policy must strike a balance between these two effects. Would public financing of campaigns or a banon interest-group contributions improve thewelfareof the average voter?Many reformers think the answer is yes. For example, after the 2000 elections, CommonCausePresident ScottHarshbarger said: [T]here is widespread dissatisfaction with how campaigns are funded in this country.... [The current] system is a gravy train for Members of Congress—–and a meal ticket for special interests, many of whom want something i