1 Announcements: Tuesday You should read the pharmaceutical articles before section tomorrow. You will be applying todays lecture ideas. In the packet,

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Announcements: Tuesday

You should read the pharmaceutical articles before section tomorrow. You will be applying today’s lecture ideas.

In the packet, the current order is: Section 11, Section 14, Paper Case, Section 12. It should be: Section 11, Section 12, Paper Case, Section 14.

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Announcements: Thursday

Next week: Read carefully the autodealers simulation for breakout.

In the packet, the current order is: Section 11, Section 14, Paper Case, Section 12. It should be: Section 11, Paper Case, Section 12, Section 14.

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G302, Week 10: Interest Groups and the

Demand for Policy

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Archer Daniels Midland Market failure: lysine price-fixing, $100M fine, prison sentences

Government failure: 1994 EPA requirement that 10% of US gasoline sold be blended with ethanol

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What you will learn today

How to figure out who will win and who will lose in politics

What determines whether political battles are public, or behind the scenes

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The Political Marketplace

• _____________supplies laws• _____________ demand laws

• Different groups bid for the laws they want.

• The currency is ultimately votes, in the U.S.

Government

Interest groups

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First Cut: Surplus Analysis

No ADM Law:PS=______CS=________

AB

C

D

E FGADM Law:

PS=____CS=____ADM= ____DWL= ____

Supply

Supply using ethanol

Demand

Quantity of gasoline

P

P0

P1

A+B+GC+D+E+F

B+CDA+EF+G

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Since ADM’s gain is less thanother interest groups’ losses, why was ADM successful?

Write your answer on a notecard

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Interest Group Analysis

1. Decide ____________________________________________________2. Figure out __________________

each group will actually take. 3. Decide how your company should

respond.

who should support the policyand who should oppose it

how much political action

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Marginal benefit of political action as substitutes appear

Amount of action (fightinglabor law change)

Marginalbenefit

Fig 6.2a, Baron

The company becomesable to move to Mexico

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Marginal cost of political action as organizing costs increase

Amount of action (fighting labor law change)

Marginalcost

Fig 6.2b, Baron

A law is passedrestrictingtrade associations from lobbying

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The business decision

Amount of action (fightinglabor law change)

Marginalbenefit or cost

Fig 6.2c, Baron

MB

MC1

MC0

A1 A0

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The Demand For Policy What substitutes are available if

the interest group fails politically? What is the total magnitude of

benefit to the interest group? What is the per capita benefit to

each member of the interest group?

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Ability to Take Political Action How numerous are the members of

the interest group? How good is their coverage of

legislative districts? What resources are available to them? How costly would it be to organize the

members to take action on this issue?

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Policy under analysis: Interests Demand Side Supply Side Prediction

Benefits from the Policy__ Ability to Generate Action

Supporting Organizing Political Interests Subs. Magnitude Per Capita Numbers Coverage Resources Costs Action Opposing Organizing Political Interests Subs. Magnitude Per Capita Numbers Coverage Resources Costs Action

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Policy under analysis: Exemption for job-creating exports Interests Demand Side Supply Side Prediction

Benefits from the Policy__ Ability to Generate Action

Supporting Organizing Political Interests Subs. Magnitude Per Capita Numbers Coverage Resources Costs Action Boeing lower price shareholders sell shares large small large extensive large high little employees few large substantial large little limited low little suppliers other bus. substantial moderate substantial extensive moderate high moderate Communities Boeing few substantial considerable small little small low little suppliers few moderate moderate considerable extensive moderate high little Oil rig,container lower price moderate small few little moderate low little mfgrs Lessors other loans moderate small small little large low little Opposing Organizing Political Interests Subs. Magnitude Per Capita Numbers Coverage Resources Costs Action Taxpayers none large small huge complete huge high little Tax-exempt none substantial substantial large extensive small low large

Baron, fig. 6.6

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Policy under analysis: Require ethanol in 10% of gasoline Interests Demand Side Supply Side Prediction

Benefits from the Policy__ Ability to Generate Action

Supporting Organizing Political Interests Subs. Magnitude Per Capita Numbers Coverage Resources Costs Action ADM o.p* large large one little moderate low large Corn farmers o.p.* large small many extensive moderate low moderate Opposing Organizing Political Interests Subs. Magnitude Per Capita Numbers Coverage Resources Costs Action Oil companies sell less moderate moderate moderate extensive large moderate moderate Auto drivers pay more large small large extensive large huge little

*o.p = other products

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Why do we have sugar import quotas? (a) Sugar farmers have large benefits per capita

and huge numbers(b) Sugar farmers have large benefits per capita

and low costs of organizing(c) Sugar farmers have a large total magnitude

of benefit and consumers have a small magnitude of loss

(d) Sugar consumers have a large magnitude of benefit and have corn syrup as a substitute

(e) Sugar consumers have complete coverage and large numbers

1. Did the sign-in sheet get around? 2. If you answered a question, bring up anotecard for me.

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Your Company’s Choices

Increase awareness of potential allies

Help with organizing costs of allies Choose a different policy, where you

would have stronger allies or weaker opposition

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Four Kinds of Politics

•Interest Group Politics: Special interests battle it out

Majoritarian Politics: An issue big enough to attract general attention, so we expect the majority position to win

Client Politics: Special interests become the clients of a few legislators

•Entrepreneurial Politics: A political entrepreneur arises to act for the dispersed interests who would benefit from the policy, or it will fail

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When to Expect Each Kind of Politics

Majoritarian Politics: The costs and benefits are spread widely, so special interests are less important.

Interest Group Politics: Special interest groups are active on each side, because costs and benefits are concentrated.

Client Politics: Opposition to your favored policy is disorganized.

Entrepreneurial Politics: Support for a policy you oppose is disorganized.

___________________________

___________________________

___________________________

____________________________________________________________________________

Your firm’s strategy does not matter.

Your firm’s lobbying matters.

A good opportunity for political success.

If you act, you can block it—unless the entrepreneur raises awareness enough.

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The Four Kinds of Politics in Table Form

Dispersed

Concentrated

DispersedConcentrated

Policy Benefits

PolicyCosts(= benefitsfrom opposingit)

Interest grouppolitics

Clientpolitics

Entrepreneurialpolitics

Majoritarianpolitics

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Examples in Table Form

Dispersed

Concentrated

DispersedConcentrated

Policy Benefits

PolicyCosts

phone access

sugar quota capital gainstax

landfill location