some aspects of the political economy of election campaign contribution laws

Some Aspects of the Political Economy of Election Campaign Contribution LawsAuthor(s): Peter H. Aranson and Melvin J. HinichSource: Public Choice, Vol. 34, No. 3/4 (1979), pp. 435-461Published by: SpringerStable URL: http://www.jstor.org/stable/30023122 .

Accessed: 15/06/2014 19:19

Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at .http://www.jstor.org/page/info/about/policies/terms.jsp

.JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range ofcontent in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new formsof scholarship. For more information about JSTOR, please contact [email protected].

.

Springer is collaborating with JSTOR to digitize, preserve and extend access to Public Choice.

http://www.jstor.org

This content downloaded from 185.2.32.141 on Sun, 15 Jun 2014 19:19:27 PMAll use subject to JSTOR Terms and Conditions

http://www.jstor.org/action/showPublisher?publisherCode=springer

http://www.jstor.org/stable/30023122?origin=JSTOR-pdf

http://www.jstor.org/page/info/about/policies/terms.jsp


Some aspects of the political economy of election campaign contribution laws'

PETER H. ARANSON and MELVIN J. HINICH*

Abstract This essay constructs a very general model of an election campaign contributor's decision problem. This model permits one to assess the effects of three variables on the campaign contribution decision in two-candidate elections. These variables are: first, the level of the statutory contribution limit; second, the presence of a statute enforcing disclosure of the source and amount of each contribution; and third, the contributor's subjectively estimated probability that each of the two candidates wins. The findings from the model lead to the conclusions that statutory limits and disclosure work against the candidate whom the contributor believes to be trailing. Moreover, as the statutory contribution limit becomes smaller, the leading candidate's perceived electoral margin needed to receive all of the contributor's budget diminishes to zero. Hence, the Supreme Court majority's decision in Buckley v. Valeo, that the 1974 Federal Election Campaign Act does not discriminate invidiously against challengers of incumbents, as well as minor party candidates, is brought into serious question.

Introduction The mixture of money and election campaigns has been a constant source of uneasiness among students and practitioners of American politics. While we need not provide a comprehensive review of the arguments about, and bases of, this concern, such uneasiness as there is seems to resolve itself into these very general areas of discussion. First, campaigns may become so expensive that candidates are at the mercy of well-endowed contributors. Second, and relatedly, contributors might be able to use their resources to 'buy' an election. Or, what may be indistinguishable from buying an election, contributors might be able to buy public policy decisions after an election. Third, particular preferences about public policy may be correlated with the ability

* Respectively, Law and Economics Center, University of Miami School of Law, and Department of Economics, Virginia Polytechnic Institute and State University. An earlier version of this paper was prepared for delivery at the 1977 Annual Meeting of the Southern Economic Association, November 2-4, New Orleans, Louisiana.

Public Choice 34 (1979) 435-461. All rights reserved. Copyright c 1979 Martinus Ni/hoff Publishers by, The Hague/Boston/London.



436 P.H. Aranson and M.J. Hinich

to contribute large amounts of money, and therefore wealth may provide a disproportionate and systematic influence over elections and over the public policy commitments of those who win them. Alternatively, a campaign contribution limit may give a disproportionate advantage to those who are best able to provide nonmonetary resources such as labor and endorsements. Fourth, elections may come to resolve themselves into contests over which candidate can raise more money, rather than about which candidate best reflects some putative majority sentiment on public policy. And, the cost of elections may come to reflect a serious misallocation of resources in society.2 Fifth, officeholders might use the legislative process to provide their contributors with private benefits and to impose costs on their opponents' contributors, or simply to extract resources from otherwise dis- interested firms and other groups (see Notes 5 and 6 and Pittman, 1976, 1977). Finally, since laws regulating and limiting campaign contributions are the product of incumbent legislators, there is a constant danger that such laws will become acts for the relief of incumbents as well as - or instead of - for the improvement of national political life.

One cannot study American politics without becoming aware of most of these problems, and they are an area of extensive research (Adamany, 1969, 1972, 1976, 1977; Adamany and Agree, 1975a, b; Alexander, 1971, 1972, 1976; Dawson and Zinser, 1976; Dunn, 1972; Epstein, 1976; Fleishman and Greenwald, 1976; Heard, 1960, 1976; Minow and Mitchell, 1976; Patterson and McClure, 1976; Plattner, 1974; Staats, 1976). The members of Congress and the federal courts, too, have devoted considerable time and effort during the 1970s to perfect legislation aimed at ameliorating some of these problems.

Solutions to these problems, both enacted and proposed, are well known. Considering the two apparent extremes, on the one hand there might be no regulation of campaign contributions, while on the other hand there might be a complete public financing (and accounting) of all primary and general election campaigns. In between these two extremes there is a mix of policies including partial public funding, limitations on the size of individual monetary contributions, and disclosure of the source of such contributions. Public policy in the United States today lies somewhere between these two extremes, the exact policy being dependent upon the office sought. And, while the latest attempt (HR 1) to enact public financing of congressional campaigns failed to gain Senate acceptance, nevertheless public policy toward political money is seriously argued and in a state of change.

This essay views the potential campaign contributor's choice of alterna- tives as a problem of decision making under conditions of risk, and seeks to ascertain the effects of enforced public disclosure and legal contribution limits on that choice. An additional concern is the electoral viability of the candidates as measured by the contributor's estimate of the probability that each candidate wins. Inter alia, if incumbency provides a candidate with a



Political economy of election campaign contribution laws 437

lead in the polls, an enhanced electoral viability, then potential contributors may alter their patterns of giving depending on how great the lead is and whether or not there are disclosure requirements and legal limits on the size of contributions. Hence, we try to isolate in a tentative way the effects of statutory provisions on the electoral position of incumbents.

This essay does not provide a general theory of campaign contribution decision making. Nor do we suppose that we have accounted for all or most of the variables that affect campaign giving. Our purpose is limited to using an abstract, theoretical structure, with the least restrictive assumptions possible, to investigate a few problems relevant to legal limits and disclosure of contributions. First, we outline the notation and assumptions used to describe the contributor's decision problem. Second, we investigate in turn the effects of statute limitations on contributions and the effects of the required disclosure of contributors and of the size of their contributions on the decision to give. Third, we discuss the Federal Election Campaign Act of 1974 (PL 93-443) and the Supreme Court's findings about that Act in Buckley v. Valeo (46 L Ed 2d 659) in the light of the preceding discussion.

Notation and assumptions We begin with a potential contributor in an election contest between two candidates, 1 and 2. We let mi and m2 respectively be the amount of money the contributor gives to each of the candidates. Suppose candidate i wins the election; in that case, f'(m1, m2) denotes the contributor's net expected benefit from giving mi and m2 dollars (or appropriately measured nonmonetary units) respectively to candidates 1 and 2.

That the contributor's payoff, fi, is a function of m, reveals an assumption implicit in most discussions about campaign giving, and especially about disclosure. The functional relationship between, say, mI and f1 posits that a candidate knows who his contributors are (or at least the contributor believes he does), and how large each contribution is. If fl is a function of m2, of course, then the relationship posits that candidates can identify their opponent's contributors (or at least the contributors believe they can).

Candidates, however, may be unable to identify either their contributors or their opponent's contributors. Contributions from the public treasury, in the broadest sense, eliminate this knowledge. If data collection methods are inadequate, and if most contributions are sufficiently small and numerous, then the costs of gathering, processing, and assimilating information about such contributions may exceed the implicit benefits derived from monitoring what givers provide. How and when a candidate will collect such information, naturally, depends on whether or not the candidate wins. The size of a contribution is also important in shaping the kind of information candidates receive. Even without disclosure, large contributions are difficult to conceal from those who fail to receive them, although generous contributors usually try to make themselves and the level of their contributions




known to the winner who accepted their largesse.3 To specify the relationship between, say, f1 and mi, we use here the

very weak assumption of most microeconomic analysis that over some pertinent range of mi, fi is a monotonically increasing, marginally diminishing function of mi. Thus, for instance, af1 (ml, m2) /am1 > 0, and, 82f' (mi, m2) /am < 0, while the same kind of functional relationship holds between f' and m2.4 Figure 1 shows one possible illustration of the relationship between f' and mi .

f ' (m,,m2 )

I

I I

I I I I I I I

I

af'/dmm =0 m,

Figure 1. f' (m,, m2), net benefit if candidate 1 wins.

Without legal or practical public disclosure of contributions, it seems reasonable to suppose that f1 depends only on min and f depends only on m 2. The problem of contributions-in-kind, such as public endorsements or labor, therefore, does not fit well within the nondisclosure case, as such activities are readily observed. In the absence of legislated disclosure, furthermore, it seems reasonable to assume that it may be prohibitively




expensive for a candidate (even a winner) to get information about an opponent's contributors.

With disclosure of contributions, we can assume that f' does depend on m2, as well as on mi; and of course, f2 depends on mi as well as on m 2.

We suppose that the functional relationship between, say, fP and m2 is similar but opposite to the relationship between fl and mi . That is, afl(m1, m2)/am2 < 0, and, a2fl (m1, m2)/am2 < 0. A similar relationship holds between f2 and mi .

The first order inequality, af1/am, < 0, appears quite reasonable. The second order inequality, a2f1/am~ < 0, however, may deserve some atten- tion. This inequality incorporates the notion either that the candidate punishes his opponent's contributors in a linear proportion to the size of their contributions (= 0) or that he punishes them disproportionately more as their contributions rise (< 0).

Either notion provides us with concavity. However, the notion of an increasing rate of damage at once is consistent with the idea of diminishing marginal utility and the proposition that larger givers have a disproportionately greater capacity to absorb punishment. This last idea derives from the observation that larger contributors are likely to have some market power and thus are disproportionately better able to pay for political miscalcula- tions than are private persons and firms in competitive industries (Pittman, 1976, 1977).

Another supposition, affected by the relationship between f1 and m2, which we suggested earlier, gains credence from Vice President Rockefeller's testimony at his Senate confirmation hearings, namely that contributions may be preventing damage rather than creating wealth or income.5 A potential giver might believe, for example, that without disclosure fP (0, m2) < 0, even if m2 = 0, simply because candidate 1, the winner, punishes noncon- tributors.6 The possibility that fl (0, m2) < 0, raises no conceptual problems, as the mathematics do not change. In Figure 1, we would simply adjust the vertical axis to register from a large negative number at the origin to smaller negative numbers above the origin.

The final set of assumptions concerns the contributor's goals in giving. We postulate that the contributor chooses mi and m2 so as to maximize a net expected value of his contribution, 0(m 1, m2), such that:

(ml, m2) = pf'(ml, m2)+ qf2(m, m2). (1)

Here, p and q denote respectively the contributor's subjectively estimated probability that candidates 1 and 2 win the election. (Of course, q = 1 - p.) Since, by assumption, f' and f2 are strictly concave, 0 becomes a strictly concave function of mi and m2. And, without loss of generality, we adopt the convention that if mi = m2 = 0, then f (0, 0)= f(0, 0)= =(0, 0)= 0.

Suppose either that the contributor has a budget constraint or that statute




law sets the constraint in the form of a limit on contributions to any candidate. Let m be this constraint, and mf and mf be respectively the donor's optimal contributions to candidates 1 and 2. We assume that the second derivatives of f' and f2 are such that m = m? + m'. That is, the contributor's entire budget (or legal limit) is spent unless, of course, as the result of the slopes of f1 and f2 at mi = m2 = 0, the contributor gives nothing.

Finally, we assume that p and q are independent of mf and mf'. That is, the contributor does not believe that his contribution 'buys' or helps to buy an election. The contributor's sole purpose in giving is to invest in a kind of insurance policy. Without disclosure of contributions, that insurance either provides a benefit if the recipient candidate wins, or forestalls punishment if that candidate is less than magnanimous in victory. Again, the mathematics remain identical whether the winning candidate rewards, or punishes, or both rewards and punishes.7

While it is unnecessary to argue for the 'realism' of believing that p and q are independent of mf and m', nevertheless the assumption is worth dis- cussing. One stated concern of PL 93-443, as well as of the Supreme Court in Buckley v. Valeo, is to see to it that popular faith in the electoral process is not undermined by the appearance that large contributors can buy elections and election winners. Accordingly, our principal concern in this essay is not with the $ 25 contributor but with the potential donor of thousands of dollars.

The large contributor is probably not likely to believe that even a large contribution could materially affect p and q, any more than he or she is likely to believe that the last 1,000 shares of IBM added to his or her port- folio could materially affect the prices of IBM shares. People who seek substantial private benefits in return for their large campaign contributions, in short, are unlikely to overestimate the effect their money might have on the election outcome. They are too well educated in the electoral process to give much weight to the belief that as individual contributions their dollars count. And, because our focus is the large contributor (who is concerned with the private benefits or costs he or she must accept after the election and less with universalized public policy) it seems only reasonable to believe that m is a constraint of statute law, and not of personal budgets.

Contributions without legal or practical limits or disclosure To show how a contributor might proceed without a legislated or practical budget constraint or disclosure, we need only apply the calculus to find at what point 0(m1, m2) is maximized. For a simple example, suppose that f' and f2 are identical functions. Since there is no practical or legal cause for disclosure, f' and f2 are functions solely of m, and m2 respectively. Thus, /(m1, m2) = pf (m1) + qf(m2). Assuming the second order conditions are satisfied, a maximum occurs where paf'/lam + qaf/am2 = 0.




Since f' and f2 are identical functions, the first order condition can only be satisfied where the maximizing contributions, mf and mf, are equal.

Figures 2 and 3 illustrate the reasoning behind this result. Figure 2 depicts pf' and qf2 on a single axis as functions of ml and m2 respectively. These functions are identical to the one shown in Figure 1, except that they are discounted for the contributor's estimate of the probability that each candidate wins. As is clear from Figure 2, each function reaches a maximum for the same value of m*.

Figure 3 shows pafl/bml and q af2/am2 as functions of mi and m2 respectively. (The dotted lines and associated labels in Figure 3 are used later.) These linear segments are appropriate if f' and f2 are quadratics, although there is no reason for our formulations to be limited to quadratics, as by assumption we require only that

3f'fami > 0 and a2f1/amf < 0.

The campaign contributor in this case of neither limits nor disclosure gives to each candidate up to the point at which his opportunity cost from the last dollar contributed equals exactly the added benefit the contributor expects to receive from the candidate in exchange for the last dollar. That is, the contributor's marginal net benefit equals zero at mf and mf.

What strikes us particularly about this formulation is that some very general and weak assumptions lead to the finding that with neither limits nor disclosure the contributors give an equal amount to each candidate even if p * q. That is, the contributors' donations are independent of their estimates of each candidate's chances of winning. Other factors, such as personal ideology and functional differences between f1 and f2, may alter this conclusion. But, with no prior reason to incorporate such factors, in terms of the variables included here, in these situations m? must equal ml.

We cannot conclude, of course, that p and q do not matter in otherwise symmetric elections with neither contribution limits nor disclosure. These probability estimates will not matter provided that all contributions are indeed concealable and that f1 is not a function of m2 orf2 of m 1. Some candidates, however, may rely comparatively more than their opponents on groups better able to give contributions-in-kind, such as campaign labor and endorsements, than they are able to give contributions-in-money. As contributions-in-kind are more difficult to conceal than their dollar equivalents, those candidates who depend upon them (and by inference their client groups) may be at a significant disadvantage. This disadvantage is predict- able from our finding for the case of disclosure later in this essay: if winners punish their opponent's contributors, then those who expect such punishment if they back a loser usually give only to candidates they expect to win.




pf (mI) .

pf(mt)

qf (m2)

qf(m2)

mI m

m m2

Figure 2. pf(m,) and qf(m,); p > q.

Contributions with limitations but without legal or practical disclosure

The preceding discussion of contributors' decisions without budget constraints, legal limitations, or disclosure uses calculations very similat to those that are appropriate if legal or practical constraints are present. Since nondisclosure prevails, we can continue to state that f' is a function alone of mi. To maintain previous simplifications, we suppose that f1 (m) = f2(m) for all m > 0. Thus, we can discard superscripts and add them later when necessary. By earlier assumption of no saturation, the contributor spends his entire budget if he is allowed to do so.

Now, consider Figure 3 again, and in particular, suppose that the contributor is constrained to give not more than m' dollars. This amount corre- sponds to the largest constraint for which no money (or other concealable contribution) would go to candidate 2. As noted earlier, the upper line in




pdf' (0)/aml

pdf' (m,)/dml

pdf' (m')/am,=

qqaff (O)/(mM)/aM2

m MII m

M2\0/M22

I

Figure 3. paf ' (m,)/amI, q af 2(m2)/am,.

Figure 3 is associated with the contributor's marginal returns from giving to candidate 1, discounted by p, the contributor's subjective estimate of the probability that candidate 1 wins. The discounted marginal net benefit associated with candidate 1, therefore, is paf(m )/lam. Similarly, the discounted marginal net benefit associated with candidate 2 is (1 - p) af(m2) /am2.

As p > q, the largest constraint for which candidate 2 would receive no money occurs if p af(m')/am 1 > (1 - p)af(O)/ am2.

The interesting variable in this inequality, of course, is p, since a contributor who estimates that candidate 1 has a probability of winning greater than or equal to p will give all of his or her budget, up to m', to candidate 1. To keep notation clear, we denote this probability as p*. Solving the previous inequality for p* yields:



444 P.H. Aranson and M. J. Hinich

af(O)/ am2 * >

+ f( (2) af(m')/ami + af(O)/am (2)

As m' increases, af(m')/am, grows smaller until it equals zero. At that point the constraint does not bind, and candidate 1 receives all of the contributor's budget only if p = 1. As m' grows smaller (m' > 0), however, af(m')/aml increases until af(m')/am1 = af(o)/am1 = af(o)/am 2.

At that point, p* = 1/2. For values of m' between these two extremes, ap*/am' > 0, so that as the contribution limit, m', grows smaller, candidates who are ahead in the contributor's mind tend to receive all of the contributor's donations.

This reasoning can be generalized in a theorem. Define two bounds on probability, p* and p**, such that:

Saf(o)l/am2 af(m')/lam, +

af(o)lam2 and

af.(m')/am2 8 p** = p**(m') = ()/ + af(m')/ 2 af(0)/8m, + af(m')/8m, Theorem 1: If p > p*(m) > 1/2, then the contributor gives all of his budget to candidate 1; if p < p**(m) < 1/2, then the contributor gives all of his budget to candidate 2. (See the Appendix for the proofs of all theorems.)

The implications of Theorem 1 are apparent. As the legal constraint on contributions becomes more severe, a smaller and smaller lead for the candidate expected to have the better chance of winning is translated into a shift of all or most contributions to that candidate. The probabilities p and q, of course, are not expected vote proportions but are winning probability estimates of contributors. Thus, a small lead in the polls or a history of winning elections can make p very large, in which case the trailing candidate receives

practically no contributions as the result of the legal limitation, m'. Theorem 1 identifies the values of p and q, as functions of m', at and

exceeding which one candidate or the other receives all of the contributor's largesse. It is evident from Figure 3, however, that the candidate believed to be leading has an advantage with contributors even if the size of m' and




p = 3/4

"-

-

p = 2/3e

-/

/

q=0

/2

I

1 I/2

2

m

Figure

4. m,

and

m2

for

alternative

values

of m', p, and

q.

= contribution

to candidate

1 (m , )

= contribution

to candidate

2 (m,)




the probabilities do not leave the trailing opponent utterly without contributions. By working our calculations backward, using quadratics for f1 and f2, it is not difficult to illustrate this advantage.

Figure 4, accordingly, shows the monetary contributions to the candidates for alternative values of p, q, and m'. The resulting curves assume a single contributor with a simple quadratic utility function (f'(mi) = mi -

m?/2). In all instances m' < 2, and there is no saturation for smaller values of m'. These conditions are sufficient to demonstrate that the candidate believed to be leading receives more money than a trailing opponent except at m' =*2. While this advantage declines as m' giows, the rate of that decline becomes smaller as the probability that the trailing candidate wins grows smaller. Thus, the rich grow richer. In sum, candidates who contributors perceive to be less likely to win are commensurately less likely to receive contributions. What contributions they do receive will be smaller than those of candidates who are believed to be more likely to win.9

Contributions with practical or legal disclosure The analysis of the contributor's decision problem if practical or legal disclosure of the size and recipient of contributions prevails generates a richer set of results, but those results are less clean and less general than is the case without disclosure. The disclosure case is more complex than the nondisclosure case because the election winners may be expected to treat contributions to themselves and to their opponents quite differently, especially if a particular contributor gives to both candidates in a race. The disclosure case is richer than the nondisclosure case simply because there is more varied action to analyze.

Enforced or practical disclosure of contributors and their gifts empowers the winning candidate to find out these matters. Thus, f' and f2 are functions of both mi and m2. To simplify matters again, let f2(m1, m2) = f' (m2, mi1), which eliminates superscripts. Equation (1), then, becomes

b(m 1, m2) = pf(mn1, m2) + qf(m2, mi).

Suppose that candidate 1 wins, so that we need only be concerned with f(mI, m2) and not with f(m2, mi). We define a new term, 8(m1, m2), such that,

S(m , m2) = af(m1, m2)/amni + af(m1, m2)/am2. (3)

Of course, af(ml, m2)/aml > 0 > af(ml, m2)/am2, so that 6(mI, m2) could be greater than, equal to, or less than zero. Whatever the value of 5(m , m2), its relative magnitude represents the contributor's belief about how election winners will respond to donations to themselves and to their opponents in the presence of disclosure.




To give substantive meaning to 6 (ml, m2) we begin with the case of 6 (0, 0) = 0. This case represents the contributors' decision problem if they believe subjectively that the winning candidate will reward them for the first dollar they give to him as much as he will punish them for the first dollar they give to his opponent. A brief theorem provides a general finding for this case.

Theorem 2: If 6(0, 0) = 0, then contributors give their entire budget to the candidate they believe will win; if p = q = 1/2, contributors give nothing.

Theorem 2 clearly depends on the strict concavity of 4 with its arguments. And the theorem seems intuitively obvious. Equivalent marginal contributions to each candidate produce no payoff to the giver. Accordingly, everything goes to the candidate expected to win, even if the odds are only slightly in that candidate's favor.

If 8 (m I, m2) < 0, however, then one might relax the assumption of the strict concavity of 4 with its arguments. This is only reasonable, since this contingency implies that the marginal loss the winning candidate is expected to impose on the contributor from giving the last dollar to the loser out- weighs the marginal gain the winning candidate is expected to provide the contributor for giving him the last dollar. More generally,

Theorem 3: If 6 (m , m2) < 0, for all m1, m2 > 0, then contributors give all of their budget to the candidate they believe will win. (If p = q = 1/2, then the contributors give nothing if and only if, f(mi, 0) < - f(0, m).)

We have now followed the logic of two distinguishable beliefs that contributors and potential contributors might hold about candidates, and especially about winning candidates. The first belief, that 8(0, 0) = 0, might characterize contributors and potential contributors in an electoral environment who, over time, expect winning candidates not to punish them more than they help them for equal contributions to themselves and to their election opponents.

The second belief, that 6 (ml, m2) < 0, provides the foundation for Theorem 3 and for the even more general statement dependent only upon the quasi-convexity of 0.o0 But, Theorem 3 captures the essences of an electoral environment that contributors and potential contributors expect to be more brutal. In this environment, even at the margin, small contributions or courtesies to a candidate's opponents, even by that candidate's most ardent supporters and contributors, result in a net retribution by the candidate if the opponent loses. The result in Theorem 3, accordingly, is plain and intuitive.




A greater historical verisimilitude, however, may be associated with the contributors' belief that S (mi1, m2) > 0. That is, at the margin contributors expect to receive from the winning candidate greater (or equal) rewards from giving to the winner than they expect punishment from the winner for giving to the loser.

One would expect this condition to be more likely to hold in a stable two-party system than in an unstable system or in a multi-party system. The reason for this expectation is found in the nature of actual and potential contributors of large amounts of money. Such people, or groups of people, can be thought of as giving money to the members of a duopoly (the two parties) to insure against future losses from legislative enactments and bureaucratic rule making and enforcement. Alternatively, the contributors' actions are aimed at securing particularized benefits in the same sense as identified by Mayhew (1974) and later formalized by Aranson and Orde- shook (1977).

Unless there is a head-to-head conflict of identifiable groups, such as the perennial battles of truckers and railroads (Hacker, 1962), officeholders may take little notice of who provided their election opponents with finan- cial support. This benign neglect may be reinforced by the belief that in the next election contributors might make better judgments about p and thus shift their support to the incumbents. While the contributor's support may be available to either party, explicit punishment by either party may alienate the contributor in future elections.

To analyze the case of 5 (0, 0) > 0, we define a new probability bound:

p = p(m)

af(O, m)/am1 - af(o, m)/am2

af(m, 0)/am + af(O, m)m f(m, af(f(m, 0)/n2 -af(O, m)/am2 or, rearranging terms:

1 -P(m) af(m, 0)/am1 - af(m, 0)/am2

P(m) af(0, m)/am - af(O, m)/am2" This probability bound is analogous to p* in Theorem 1, and serves a similar function in another theorem.

Theorem 4: Let 8 (0, 0) > 0 and a2f(m1, m2)/am1am2 > 0 for all m 1, m2; if p > > > 1/2, then contributors give their entire budgets to candidate 1; an analogous result favoring candidate 2 holds for p< 1/2.

In the spirit of the condition that 6 (0, 0) > 0, the associated assumption about the cross partial derivative, a'2fl/am, m2 > O0, implies that contributing to both candidates increases net expected returns. Parties and candidates




are positively interested in the size of the total contribution to the duopoly, and not alone in the division of the contribution. Despite the stength of these conditions, nevertheless, p is important because after p passes the probability bound, $, the contributor's entire budget, m, goes to candidate 1. If 6 (0, 0) > 0 and a2f/ aml am2 < , then there is no general solution to the contributors' decision problem because of the joint effects of mi and m2 on 0, as well as because of the concavity of 0.

Theorem 4 resembles Theorem 1 in the relationship between p

and m. An inspection of the preceding statement of A shows that an/am > 0. As m diminishes to zero, P(m) decreases to 1/2. Thus, if m is an externally imposed contribution limitation, such as m' in Theorem 1, then a reduction in this limitation gives the candidate perceived to have a better chance of winning a greater advantage.

The formulation in Theorem 4 is useful in some limited instances for comparing the effects of disclosure with the effects of nondisclosure and a statutory campaign contribution limit. Thus, the purpose of the following theorem is to compare the slopes of ^

(m) and p*(m) at m = 0. That is, the theorem connects Theorems 1 and 4, for a particular case where f(m1 i, m2) is a separable function:

Theorem 5: Suppose f(m1, m2)is a separable function, f(m1, ms) = a(m1) - 3(m2); let ao/am1, a /am2 > 0, and a2p/ami < 0; for nondisclosure, let P = 0; if a2a(0)/am2 = a28(0)/ami, and if aa(o)/amI > a(o)/am2, then ap*/am < a$/am at m = 0.

Because ap*/lam < a8/am, given that aa(o)/am1 - aV(o)/m2 = (0, 0) > 0 and a2f/am1 aIm2 = 0, it is evident that in such elections, ceteris paribus, disclosure is less likely to create a greater advantage in contributions for a leading candidate than is nondisclosure with a statutory campaign contribution limit.

While we do not explicitly investigate the third (or minor) party problem, nevertheless Theorem 5 has some implications for it. If we conceive of the contributor, as earlier in the discussion of Theorem 4, as one who buys insurance from a two-party duopoly, then with disclosure party leaders can come to two reasonable inferences. First, party leaders can infer that contributors, by giving, are announcing their continuing willingness to support campaigns generally. Second, party leaders can infer that contributors, by giving, are revealing their loyalty to the two-party duopoly and against third parties. With 6 > 0, then, disclosure may be fatal to the finan- cial well being of third parties, especially if those parties depend on large contributions.

Buckley v. Valeo: the justices as social scientists As the introductory section of this essay suggests, the practical, theoretical,




and conditionally normative problems associated with campaign contributions are seriously controverted. The Congress, in the Federal Election Campaign Act of 1974, and the Supreme Court, in Buckley v. Valeo, have expressed firm legislative and constitutional positions on a substantial number of problems involved. Nor have legal writers and social commen- tators been silent on campaign finance issues (Kazman, 1976; Nicholson, 1974; Penniman and Winter, 1971; Plattner, 1974; Redish, 1971; Rosenthal, 1972).

While recognizing the pervasiveness of the issues involved, we have not discussed, gainsay agreed upon, what we think the 'best' method of regulating campaign finance might be. Nevertheless, we believe that we have come to some very general conclusions about the effects of campaign contribution limitations and disclosure upon the relative fortunes of candidates, as a function of their electoral viability. Thus, given the conclusions we reach, as well as others that one may wish to stipulate, it is possible to calculate the kinds of tradeoffs associated with alternative packages of regulations, and to apply one's own criteria to construct a preference ordering over those alternative packages.

There is a certain amount of hindsight in all of this, as the Supreme Court, in Buckley v. Valeo, has been over this ground. Yet, if the Court

majority's criteria are truly 'constitutional,' then despite the ethical proper- ties of the Court's conclusions, an application of the theorems in this essay allows us to say only that the majority seems to have reached the wrong conclusions for the wrong reasons. Alas, a like impediment overcomes the plaintiffs.

Buckley v. Valeo was argued on November 10, 1975 and was decided on January 30, 1976. The principal appellants were then-Senator James L. Buckley and former Senator Eugene McCarthy, who were joined by a number of political groups. Appellees were Francis R. Valeo, then-Secretary of the Senate, and the Federal Election Commission set up under the 1974 law. Two points of contention that do not directly interest us here concern the constitutionality of public financing of campaigns, as well as of the manner of appointing the Federal Election Commission members. What remains of the case that is of concern are arguments over, and propositions about, campaign contribution limits, (tangentially) campaign spending limits, and disclosure provisions.

The justices put together overlapping, though slightly different majorities to find that limitations on campaign contributions do not substantially affect political discourse, and therefore are constitutionally valid, as are rather stringent regulations for disclosing the source and amount of contributions. In all of this, the question appeared as to whether or not these

provisions of the Act discriminate invidiously against minor party candidates and challengers to incumbents. While the Court held that there was no such invidious discrimination, the findings of this essay can easily be interpreted




to contradict that opinion. First, the Court believes the limitations on contributions are constitut-

tionally permissible. They are not a serious impairment of free speech and association. With that reasoning, this essay offers no quarrel, for it may be, as the Court holds, that:

[A] limitation upon the amount that any one person or group may contribute to a candidate or political committee entails only a marginal restriction upon the contributor's ability to engage in free communication. A contribution serves as a general expression of support for the candidate and his views, but does not communicate the underlying basis for the support. The quantity of communication by the contributor does not increase perceptibly with the size of his contribution .... A limitation on the amount of money a person may give to a candidate or campaign organization... does not in any way infringe upon the contributor's freedom to discuss candidates and issues (46 L Ed 2d 688-689).

The Court concludes:

Given the important role of contributions in financing political campaigns, contribution restrictions could have a severe impact on political dialogue if the limitations prevented candidates and political committees from amassing the resources necessary for effective advocacy. There is no indication, however, that the contribution limitations imposed by the [1974] Act would have any dramatic adverse effect on the funding of campaigns and [on] political associations. The overall effect of the Act's contribution ceilings is merely to require candidates and political committees to raise funds from a greater number of persons and to compel people who would otherwise contribute amounts greater than the statutory limits to expend such funds on direct political expression, rather than to reduce the total amounts of money potentially available to promote political expression (46 L Ed 2d 689).

But, the appellants challenged the Act on the grounds, 'that the contribution limitations work such an invidious discrimination between incumbents and challengers that the statutory provisions must be declared unconstitutional on their face' (46 L Ed 2d 694). 'No,' responds the Court:

In considering this contention it is important ... to note that the Act applies the same limitations on contributions to all candidates regardless of their present occupations, ideological views, or party affiliations. Absent record evidence of invidious discrimination against challengers as a class, a court should generally be hesitant to invalidate legislation which on its face imposes even-handed restrictions (46 L Ed 2d 694-695).

Yet, in an accompanying footnote, the Court majority provides the necessary technical assumption to disconfirm its opinion.

Since an incumbent is subject to these limitations to the same degree as his opponent, the Act, on its face, appears to be even-handed. The appearance of fairness, however, may not reflect political reality. Although some incumbents are defeated in every congressional election, it is axiomatic that an incumbent usually begins the race with significant advantages. In addition to the factors of voter recognition and the status accruing to holding federal office, the incumbent has access to substantial resources provided by the government. These include local and Washington offices, staff support, and franking privilege (46 L Ed 2d fn 33).




Further, the majority believes that 'to the extent that incumbents generally are more likely than the challengers to attract very large contributions, the Act's $1,000 ceiling has the practical effect of benefiting the challengers as a class' (46 L Ed 2d 695).

The thrust of the Court's stipulation about the advantage of incumbency is that if p is a potential contributor's estimate of the probability that the incumbent candidate wins, and q is the corresponding probability for the challenger, then no matter what regulations apply, p > q, so that p > 1/2. Accordingly, for some subset of the potential contributors p > p*(m) > 1/2. More importantly, as m' diminishes, p*(m) approaches 1/2. Hence, by Theorem 1 and with appropriate modifications by Theorems 2 through 5, this essay demonstrates that, given the Court's stipulation, the 1974 Act does discriminate against challengers to the advantage of incumbents. The challenger begins with a disadvantage, and the effect of the Act's limitations on individual contributions takes that disadvantage as a precondition and exacerbates it." Naturally, minor party candidates operate under a like disadvantage because of the Act's invidious discrimination against them. Here, though, the problem is worse, as q for a major party contender probably exceeds q for a minor party candidate. Of course, all of this invidious discrimination occurs with or without a disclosure requirement.

(Chief Justice Burger, dissenting in part, seems to have an intuitive grasp of the problem: 'The Court ... suggests that the effect of the contribution limitations will be minimal. This logic ignores the disproportionate influence large contributions may have when they are made early in a campaign; "seed money" can be essential, and the inability to obtain it may effectively end some candidacies before they begin (46 L Ed 2d 814, fn 5).')

Second, the Court believes, and the appellants partially agree, that contribution disclosure requirements may be desirable (46 L Ed 2d 715). The majority agrees also, however, that:

It is undoubtedly true that public disclosure of contributions to candidates and political parties will defer some individuals who otherwise might contribute. In some instances, disclosure may even expose contributors to harassment or retaliation. These are not insignificant burdens on individual rights, and they must be weighed carefully against the interests which Congress has sought to promote by this legislation (46 L Ed 2d 715).

The appellants concede this point and the argument by agreeing to disclosure generally. They sought, though, to exempt minor parties from the requirements, since these organizations seldom win elections, almost never can 'buy' them, and therefore in rem are incorruptible in office. Only the problems of harrassment and expense remain respectively for the minor party contributor and functionary or candidate.

Yet, the harassment and retaliation are admitted by the Court majority, by appellants and appellees, and by the Court minority. Again, Chief Justice




Burger isolates the technical conditions that enables Theorems 2 through 5 to apply, though he only hints at the invidious discrimination that the Act may encourage against minor party candidates and non-incumbents.

Examples come readily to mind. Rank-and-file union members or rising junior execu- tives may now think twice before making even modest contributions to a candidate who is disfavored by the union or management hierarchy. Similarly, potential contributors may well decline to take the obvious risks entailed in making a reportable contribution to the opponent of a well-entrenched incumbent (46 L Ed 2d 811).

And:

[No] legitimate public interest has been shown in forcing the disclosure of modest contributions that are the prime support of new, unpopular or unfashionable political causes. There is no realistic possibility that such modest donations will have a corrupt- ing influence, especially on parties that enjoy only 'minor' status; major parties would not notice them; minor parties need them (46 L Ed 2d 813).

The Court majority rejects Burger's view because of a failure to document a pattern of harassment, an argument that is a non sequitur. (It is tedious to adumbrate the Catch-22 logic involved in the majority's reasoning. If a UAW member might be harassed if his contribution to a Republican candidate's campaign became a matter of public record, then the Court's requirement that he complain - by inference publically - to establish proof of harassment, strains credulity.) Nevertheless, the Court majority stipulates that disclosure diminishes the likelihood of contribution. Earlier in this essay, however, we find in the theorems about disclosure that in nearly every instance, disclosure provides a systematic reduction in giving for those candidates who, contributors believe, are trailing their opponents. The heavy amount of corporate PAC giving to Democratic incumbents provides strong anecdotal evidence in support of the Chief Justice's verstehen and our theorems concerning disclosure. This result occurs most generally, can also reflect either a statutory budget constraint, and again has the effect a fortiori of generating an invidious discrimination against non-incumbents and minor parties.

For minor parties especially, if 6 > 0 (aa(ml)/aml > aa(m2)/am,) with disclosure they receive diminished support (Theorem 5). Here, though, it is reasonable to speculate that if 6 < 0, then the effect on minor parties' candidates may be less severe than the effect on a major party challenger; for, af(ml, m2)/8m2 may decline more rapidly for the major party loser than the minor party loser, especially if the winner does not take the latter too seriously. As before, of course, the parties' relative standings become more important as the size of the permissible contribution diminishes.

The Supreme Court majority in Buckley v. Valeo, in sum, failed to recognize the important detrimental effects a limit on individual campaign contributions, as well as compulsory disclosure of contribution sources and




amounts, might have on minor party fortunes and on nonincumbents. Of course, we do not dwell here upon the reasons why the Court majority finds these public policies beneficial (46 L Ed 2d 691-passim). We accept that criticism but remain neutral as to whether or not we would come to the Court's conclusion, as other considerations (for example 'legitimate' or 'honest' elections) may stand higher on our preference orderings than does a putative fairness to minor party candidates and nonincumbents.

The decision in Buckley v. Valeo assumes, of course, that the 1974 Act will accomplish its purpose. Kazman (1976) argues persuasively that the aid the Act provides for incumbents will make sitting officeholders 'more attractive investments' for those who want to 'buy' public policy. Thus, for example, the Act will serve to shift contributors' donations away from congressional candidates and toward incumbent House members. The importance of Kazman's hypothesis for our discussion is that the hypothesis rests on the advantage of incumbency under the Act, an advantage that our analysis details.

Conclusion This essay joins a small but growing collection of literature that seeks to investigate campaign contribution decision making using a formal theoretical analysis (Ben Zion and Eytan, 1974; Ferejohn and Noll, 1976; Kazman, 1976; Pittman, 1976, 1977; Staaf, 1978; Tullock, 1972; Welch, 1975). We do not attempt to construct a general theory of campaign contributions. However, we do try to use the most general assumptions about contributors to analyze variations in contributions associated with perceived candidate viability, contribution limitations, and disclosure.

The results of this analysis are that contribution limitations and disclosure tend to give an advantage in contributions to those who contributors believe to have a better chance of winning their election contests. The more restrictive is the contribution limit the smaller is the perceived lead necessary for a candidate to receive an advantage in contributions. Thus, the Supreme Court's decision in Buckley v. Valeo, that the 1974 Federal Elec- tion Campaign Act does not discriminate invidiously against challengers of incumbents, as well as minor party candidates, is incorrect as long as contributors believe that challengers and minor party candidates are less likely to win elections than are incumbents and major party candidates.




Notes

1. Many of the technical results of this essay appear in Hinich (1977). We thank Howard Rosenthal for his comments. 2. Abrams and Settle (1976) have proposed a cost reducing, random voter selection system. By their calculations, this procedure would have saved about $ 250 million in each of the presidential elections of 1964, 1968, and 1972. A related proposal is in Mueller, Tollison, and Willett (1972). 3. To sidestep the problems inherent in identifying donors, it may even be possible to enact a system wherein a contributor pays into a blind fund from which a candidate the contributor designates draws money. Since all contributions are intermingled, and as there would be no proof of a contribution, quid pro quo would be impossible, if not stupid. Presumably, the contributor's only benefit would be from the very small incre- ment the added funds might produce in the candidate's probability of winning the election. Thus far we are unaware of any proposals to enact such a mechanism, probably because if the costs of enforcing secrecy were not prohibitive, then election campaigns would go unfunded. 4. The assumption of a monotonically increasing, marginally diminishing payoff, or utility, is the standard assumption of most decision-theoretic and microeconomic analyses. It asserts only that over some range of, say, m1, f' increases, but increases at a slower and slower rate. Of course, since f' measures the contributor's net expected benefit, at some point f' will begin to decline. That point comes when a dollar added to m, produces less for the contributor than an alternative use of the dollar might create. 5. During Rockefeller's Senate nomination hearings, this exchange occured.

THE CHAIRMAN (Senator Cannon). There is one further area that I think you have perhaps eliminated from consideration in your statement that Senator Pell is now reviewing, and that is the question of political contributions.

You seem to have, in that statement, eliminated the possibility of making any political contributions, and I know that most people involved in politics do not exclude themselves from that situation.

SENATOR HUGH SCOTT. Please do not do that. MR. ROCKEFELLER. Well, I do not mean to. And I will put a footnote here that this

does not cover political contributions. But I have to say you gentlemen have pretty well covered that yourselves [referring to the 1974 Act], so that probably you will save me more money by what you have done than any other single thing that could happen.

[Laughter.] THE CHAIRMAN. Yes; we have materially limited that, and in order that the record

may be set straight, there were some inaccuracies yesterday in that record with respect to the law. We did limit the political contribution from an individual to a particular candidate to $ 1,000, not to exceed $ 1,000 for any particular election.

MR. ROCKEFELLER. Great. THE CHAIRMAN. We did not preclude a person from contributing to numerous candi-

dates and numerous committees up to a specified limit of money, and that limit is much more restrictive than what you have been accustomed to in the past.




(Senate Hearings, 1974: 617-618.) The subject must have concerned Rockefeller, because in his House testimony he accepted an opportunity to expand on the matter of contributions.

I would like to say in the eighteen years I have been in public life, my family and I spent in the neighborhood of $ 20 million on political expenditures....

Now, here's the record, here's what everybody has done each year. But, we are talking about a subject that is academic. First, you said that no candidate should spend more than $ 150,000. That saved me a great deal of money.

Then, you said no family. That was family and candidate. This was hailed by the members of my family.

Now, I understand you have passed a bill that says nobody should contribute more than $ 1,000. Well, we are talking about something that was big in the past, but was academic about the future, as far as I read the bill, or the bill is explained to me.

So that this issue is an issue that is gone as far as politics is concerned. I do not say the money is gone: $ 20 million, yes. But, I want to make that point, and I thank you very much.

(House Hearings, 1974: 115.) In spite of the badinage that surrounded much of this testimony, the point remains that we tend to be myopic about campaign contributions. For example, people might regard the (illegal) contribution of large corporations as attempts to bribe the candidate - to gain a positive payoff. However, implicit in Rockefeller's testimony is the notion that the relationship might run the other way. The candidate may be guilty of extortion, and the corporation seeks to avoid the negative payoff associated with unfavorable legislation. 6. The 'Fifty-Fifty Club' of the Chicago Labor Council, which donates to both candidates in the Cook County Sheriff's race, may be an appropriate response to this contingency. On the nonelectoral, and uglier, side of political life, extortion is a well-known pheno- menon. Paul Simon's oft quoted description of Illinois legislative practices is appropriate.

Most of these [payoffs] are recorded as legal fees, public relations services, or 'campaign contributions,' though a campaign may be months away. If questioned, the recipient simply denies that the payment had anything to do with legislative activity. This makes it technically legal. A somewhat smaller number of payoffs are not veiled at all; cold cash passes directly from one hand to the other .... [A] few legislators go so far as to introduce some bills that are deliberately designed to shake down groups which oppose them and which pay to have them withdrawn. These bills are called 'fetchers,' and once their sponsors develop a lucrative field, they guard it jealously (1964, pp. 74-75; as quoted in Keefe and Ogul, 1973, p. 11).

More recently, referring to the Agnew case, the New York 77Times noted, of payments to Agnew by Allen Green, an engineer:

These payments . . . reflected... [Green's] understanding, based upon experience, of the system in which a firm such as his had to participate in order to insure its survival and growth in Maryland . ... [T]he selection of engineers for State roads contracts has rested exclusively in the discretion of public officials - in Maryland, the Governor and the members of the State Roads Commission. They have had virtually absolute control. There are many engineering companies which seek contracts, but price competition was not allowed under the ethical standards of this




profession until October of 1971. Therefore, engineers are very vulnerable to pressure from public officials for both legal and illegal payments (October 11, 1973, p. 37, as quoted in Welch, 1974, p. 85).

7. To show the logic of the preceding formulation, let xi denote the present value of the contributor's income stream if candidate i wins, and suppose the contributor's utility for money is quadratic. It may be, for example, that, U(x) = c + dx - x', for x < d/a and d > 0. If xi is a random variable with a negatively tailed exponential density function with parameter ti, then the expected value of xi.is d/2 - yi, and the variance is

Zi2. Consequently, the net expected present value is, ft = U(m) + d2 /4 = 2(-i2 - i'ym).

8. The construction of p** follows almost precisely from the construction of p*, except that the upper line in Figure 3 is discounted by (1 - p), and the lower line by p. 9. The discussion of undisclosed and unconstrained giving shows that contributors give equal amounts to each candidate. With constraints, the contributors give equal amounts until the constraint begins to bind. If p > q, the giver first cuts back on contributions to candidate 2 as the constraint binds more and more. When m' binds sufficiently that m2 = 0, a further reduction of m' is at candidate l's expense. As will become evident, disclosure throws either all or most of the contribution to the leading candidate.

The idea of a contributor splitting contributions between two opponents may seem foreign, and may even be doubted as a common practice. We respond, first, that there is some splitting on record. Second, the unconstrained and undisclosed large contributor who views giving as an investment decision ceteris paribus must rationally give to both candidates. Third, we hope we do not ask readers to believe too much by saying that the very disclosure laws that reveal split giving make such a practice irrational, according to Theorems 2, 3, and 4. Contribution limits, too, reduce the attractiveness of splitting.

If splitting remains in doubt, we need not worry, for the same effects of constraints and disclosure continue to affect contributions. Suppose, for instance, that a trade union leader wants to contribute in all thirty-nine New York congressional districts in the next election. Ideological constraints, and perhaps even fear of the membership, however, prevent him from giving to Republicans. Assuming f' = f = ... = f39, and p, > p2 > .. . > p39, ceteris paribus he will give more money to the Democratic candidate in District 1 than in District 2, in District 2 than in District 3, and so forth. Assuming only that constraints do bind, both in terms of individual and aggregate contributions, Democratic candidates expected to be more likely to win will receive more money than other Democratic candidates. Inter alia, such effects strengthen the positions of both leading Democrats and leading Republicans. The mathematics are nearly identical to those of Theorem 2, except that we must incorporate independent Pi's. 10. The contributor's belief that a < 0 differs from an incorporation of risk aversion. Consider, for example, the quadratic utility function used in n. 7, above. Suppose the parameter ri is label invariant; that is, y(m1, m2) = y(m,, m,) = y2(m1, m,). It follows that 6 < 0 if and only if, ay(ml, m2)/am, < - ay(m,, m2)/am2. 11. Ferejohn and Noll (1973) argue that campaign expenditure limits might help the challenger because the incumbent, inter alia, would raise more money without a spending limit. While this argument is technically correct, it ignores the value of time allo- cated either to fundraising or to campaigning generally. This allocation problem may become even more severe if the challenger appears to have a low probability of winning.




References

Abrams, Burton A., and Settle, Russell F. 'A modest proposal for election reform,' Public Choice 28 (1976), pp. 37-53.

Adamany, David. Financing Politics. Madison: University of Wisconsin Press, 1969. Adamany, David. Campaign Finance in America. Scituate, Mass.: Duxbury, 1972. Adamany, David. 'The sources of political money,' The Annals of the American

Academy of Political and Social Science (hereafter Annals) 425 (1976), pp. 17-32. Adamany, David. 'Money, politics, and democracy: a review essay,' The American

Political Science Review 71 (1977), pp. 289-304. Adamany, David, and Agree, George. Political Money: A Strategy for Campaign Finan-

cing in America. Baltimore: Johns Hopkins University Press, 1975a. Adamany, David, and Agree, George. 'Election campaign financing: the 1974 reforms,'

Political Science Quarterly 90 (1975b), pp. 201-220. Alexander, Herbert E. Financing the 1968 Election. Lexington, Mass.: Heath Lexing-

ton, 1971. Alexander, Herbert E. Money in Politics. Washington, D.C.: Public Affairs Press, 1972. Alexander, Herbert E. Financing the 1972 Election. Lexington, Mass.: Heath Lexing-

ton, 1976. Aranson, Peter H., and Ordeshook, Peter C. 'A prolegomenon to a theory of the failure

of representative democracy,' in R. Auster and B. Sears, eds., American Re-evolution: Papers and Proceedings. Tucson: University of Arizona, 1977.

Ben-Zion, Uri, and Eytan, Zeev. 'On money, votes, and policy in a democratic society,' Public Choice 17 (1974), pp. 1-10.

Dawson, Paul A., and Zinser, James E. 'Political finance and participation in congressional elections,'Annals 425 (1976), pp. 59-73.

Dunn, Delmer D. Financing Presidential Campaigns. Washington, D.C.: The Brookings Institution, 1972.

Epstein, Edwin M. 'Corporations and labor unions in electoral politics,' Annals 425 (1976), pp. 33-58.

Ferejohn, John, and Noll, Roger. 'A dissenting voice on campaign reform,' Social science working paper, California Institute of Technology, 1973.

Fleishman, Joel L., and Greenwald, Carol S. 'Public interest litigation and political finance reform,'Annals 425 (1976), pp. 114-132.

Hacker, Andrew. 'Pressure politics in Pennsylvania: The Truckers vs. the Railroads,' in Alan F. Westin, ed., The Uses of Power: 7 Cases in American Politics. New York: Harcourt, Brace and World, 1962.

Heard, Alexander. The Costs of Democracy. Chapel Hill: The University of North Carolina Press, 1960.

Heard, Alexander. 'Establishing public confidence in the electoral process,' Annals 425 (1976), pp. 143-150.

Hinich, Melvin J. 'A model for campaign contributions,' in R. Auster and B. Sears, eds., American Re-evolution: Papers and Proceedings. Tucson: University of Ari- zona, 1977.

Kazman, Sam. 'The economics of the 1974 Federal Election Campaign Act Amend- ments,' Buffalo Law Review 25 (1976), pp. 519-543.

Keefe, William J., and Ogul, Morris S. The American Legislative Process: Congress and the States, 3rd ed. Englewood Cliffs, N.J.: Prentice-Hall, 1973.

Mayhew, David R. Congress: The Electoral Connection. New Haven: Yale University Press, 1975.

Minnow, Newton M., and Mitchell, Lee M. 'Incumbent television: a case of indecent exposure,'Annals 425 (1976), pp. 74-87.

Mueller, Dennis C., Tollison, Robert, and Willett, Thomas D. 'Representative democracy via random selection,' Public Choice 12 (1972), pp. 57-68.




Nicholson, Marlene A. 'Campaign financing and equal protection,' Stanford Law Review 26 (1974), pp. 815-854.

Patterson, Thomas E., and McClure, Robert D. 'Television and the less-interested voter: the costs of an informed electorate,'Annals 425 (1976), pp. 88-97.

Penniman, Howard R., and Winter, Ralph K., Jr. Campaign Finances: Two Views of the Political and Constitutional Implications. Washington, D.C.: American Enter- prise Institute, 1971.

Pittman, Russell. 'The effects of industry concentration and regulation on contributions in three 1972 U.S. Senate campaigns,'Public Choice 27 (1976), pp. 71-80.

Pittman, Russell. 'Market structure and campaign contributions,' Public Choice 31 (1977), pp. 37-52.

Plattner, Marc F. 'Campaign financing: the dilemma of reform,' The Public Interest 27 (1974), pp. 112-130.

Redish, Martin H. 'Campaign spending laws and the First Amendment,' New York Uni- versity Law Review 46 (1971), pp. 907-924.

Rosenthal, Albert J. Federal Regulation of Campaign Finance: Some Constitutional Questions. Princeton, N.J.: Princeton University Press, 1972.

Simon, Paul. 'The Illinois legislature: a study in corruption,' Harper's Magazine (Sep- tember 1964), pp. 74-78.

Staaf, Robert J. 'Homo politicus and homo economicus: advertising and information,' in David G. Tuerck, ed., The Political Economy of Advertising. Washington, D.C.: The American Enterprise Institute, 1978.

Staats, Elmer B. 'Impact of the Federal Election Campaign Act of 1971,' Annals 425 (1976), pp. 98-113.

Tullock, Gordon. 'The purchase of politicians,' Western Economic Journal 10 (1972), pp. 354-355.

United States House of Representatives, Committee on the Judiciary, 93rd Cong., 2nd Session. 'Nomination of Nelson A. Rockefeller to be Vice President of the United States,' Hearings, 1974.

United States Senate, Committee on Rules and Administration, 93rd Cong., 2nd Ses- sion. 'Nomination of Nelson A. Rockefeller of New York to be Vice President of the United States,' Hearings, 1974.

Welch, William P. 'The economics of campaign funds,' Public Choice 20 (1974), pp. 83-97.

Appendix

Proof of Theorem 1. Since f(m) is strictly concave, af(m)/am < af(O)/am. Thus, p*(m) > 1/2 > p**(m) for all m. Suppose that m* is an interior solution. The first order condition for maxirmizing 0 is p af(m,)/am, = q f(m2)/am,. Rearranging terms, this first order condition becomes:

af(m2)/am2 af(m,)/am, + af(m2)/8am2

By inspection of this equation it is evident that am*f ap > 0 must hold. If p = p*, the constraint is reached since p*a f(m') / am q = q*af(O) / am2. Thus, for all p > p*, m* = m' and m* = 0. The proof for p** follows analogously.

Proof of Theorem of 2. From equation (3), if p = q = 1/2, then, ao(0, 0) = (1/2) af(0, 0)/am, + (1/2) af(0, 0)/am2 = (1/2) 6 (0, 0) = 0, by definition. As q is strictly concave in m2, a4/am, is monotonically decreasing in m,2 Thus, a@(0, m) > 0 for all m. Similarly, a4(m,, 0 < 0 for all m. Thus, for p = q = 1/2, m* = m* = 0. But if




p > q, then:

a4(0, 0)/am = paf(0, 0)/am, + qaf(0, 0)/am2

> q[af(0, 0)/am1 + af(0, 0)/am2]

= qS(0, 0) = 0.

Thus, candidate 1 would receive the contributor's entire budget, m. By a similar argument, suppose p < q. Then:

ao(0, 0)/am, = paf(0, 0)/am2 + qaf(O, 0)/am,

> [af(0, 0)/am2 + af(O, 0)/ am, ] = p6(0, ) = 0.

Thus candidate 2 would receive the contributor's entire budget, m.

Proof of Theorem 3. The first order condition for maximizing 4 on its support are the first order conditions for maximizing the Lagrangian:

4+ h(m - m -m2)+ Am, +92m,2

such that X, t,, i2, 1> 0. These conditions are as follows:

al/am, = paf(m1, m2)/am1 + qaf(m2, ml)/am2 =

h-l, (Al)

a4/am2 = paf(m1, m2)/am2 + qaf(m2, ml)/am1 = X-A2.

Let the Kuhn-Tucker regularity conditions hold for the constraint mazimination of 4. These conditions require that if Ai > 0, then mr = 0, and if mi > 0, then 11i = 0. Summing aO/am, and aW/am,, and substituting 6 (mf, m *) in equations (Al):

a4)/am, +: a 4/am = p6 (m*, m*) + q6 (m*, mf) 1 21'Y 2, 1 = 2h - JA - I A2"

Since by assumption of this theorem 6 < 0, either j, or ;12 or both ,1 and 2, must be positive, as X is nonnegative. Hence, either my = 0, or m* = 0, or both m* and m* = 0. Suppose p > 1/2 > q. Then, 4 (m, 0) > 4 (0, m), so that the contributor gives m to candidate 1; if p < 1/2 < q, then the contributor, analogously, gives m to candidate 2. (This result holds even if f(m,, m2) is only quasiconcave in its arguments.) Recall that f(0, 0) = 0; let p = q = 1/2. If f(m, 0) < -f(O, m), then, 0(m, 0) = O(0, m) < 4(0, 0) = 0, so there is a disincentive to contribute to either candidate. Iff(m, 0) > - f(0, m), of course, then the budget is divided between the two candidates, as the net expected return from giving all of the budget to the winner exceeds in magnitude the net expected loss from giving all to the loser.

Proof of Theorem 4. Suppose m* is an interior solution. The first order condition for a maximum becomes:

pla f(m*, m*) / am* - a f(m*, m*) / am l= 1 2 2,m,, VJ\,I, 3

q[af(m*,mf) / am* - af(m*, m) / am* ] (A2) 2, /2 1 21/




such that mt = m - mf. Differentiating equation (A2) with respect to p, it can be shown by inspection that am* / ap > 0, since by assumption a2f(m,, m,) / am, am, < 0, a2f(m,, m2) / am am2 < 0, a2f(m,, m,) / am1 am, > 0, af(m, m2) / am, > 0, and af(m,, m,) / am2 < 0. The constraint is reached if p = P. Since: a2f(m,, m,) / am, am2 > 0 -) af(0, m2) / am, > af (0, 0) / am,; af(m,, 0) / am2 > af(0, 0) / am2,;and, af(m, 0) / am, < af(0, 0) / am,; af(0, m) / am2, af(0, 0) / am2 by concavity, then af(m, 0) / am, - af(m, 0) / am, < af(0, m) / am, - af(0, m) / am,, so that 5 (m) > 1/2.

Proof of Theorem 5. At m = 0, p* = = 1/2; differentiating p* and P with respect to m, and setting m = 0, ap*/ am = - [a2C(0) / am2] / [4ai(O) / am], and ap / am = [-ac2(0) / am2 + a2 P(0) / am / 4[aao(0) / am+ ap(0) / aml. Since ai(0) / am > af#(0) / am and - a2(0) / am2 = a28(0) / am2, the result follows.



some aspects of the political economy of election campaign contribution laws

Documents