Reform for Sale

Lobbying Competition Is Viewed As A Delegated Common Agency Game Under Moral Hazard. Several Interest Groups Try To Influence A Policy-Maker Who Exerts Effort To Increase The Probability That A Reform Be Implemented. With No Restriction On The Space Of Contribution Schedules All Equilibria Perfectly Reflect The Principals'' Preferences Over Alternatives. As A Result Lobbying Competition Reaches Efficiency. Unfortunately Such Equilibria Require That The Policy-Maker Pays An Interest Group When The Latter Is Hurt By The Reform. When Payments Remain Non-Negative Inducing Effort Requires Leaving A Moral Hazard Rent To The Decision Maker. Contributions Schedules No Longer Reflect The Principals'' Preferences And The Unique Equilibrium Is Inefficient. Free-Riding Across Congruent Groups Arises And The Set Of Groups Active At Equilibrium Is Endogenously Derived. Allocative Efficiency And Redistribution Of The Aggregate Surplus Are Linked Altogether And Both Depend On The Set Of Active Principals As Well As On The Group Size.