Lobbying as a Signal

ABSTRACT A model of political competition is considered, in which a candidate who will provide favors to a lobbyist in exchange for a campaign donation, may be perceived as more competent than a rival candidate who has not received a donation and therefore will work solely on behalf of the public. We characterize the Perfect Bayesian Equilibria of the game and show that: (i) the lobbyist is able to exploit the political system to serve his own interests, although lobbying may benefit voters as well; and (ii) donating to both candidates—which is frequently observed in political campaigns—is possible only under competition among lobbyists or under asymmetric information regarding voters' preferences.