In a world where a politician can explicitly auction off a prize to the high bidder, the standard auction literature can be used to analyse political behavior. The justice system, however, precludes politicians from explicitly selling the prize to the highest bidder. Thus politicians cannot let it become public knowledge that they are in the business of selling political favors. An institution has emerged in political markets to overcome this constraint which are termed as lobbying. Lobbyists make implicit payments to the politician through campaign contributions. If these up-front payments were rebated to those failing to receive the prize, it would be clear that the politician was selling favors. This article has examined an interesting principle arising in all-pay auctions. This principle states that a politician wishing to maximize political rents may find it in his best interest to exclude certain lobbyists from participating in the lobbying process, particularly lobbyists valuing most the political prize.
Baye, Michael R., Dan Kovenock, and Casper G. De Vries. "Rigging the lobbying process: an application of the all-pay auction." The American Economic Review (1993): 289-294.
American Economic Association
This article was originally published in The American Economic Review in 1993.