Merchants of Reputation: Privatization under Elites' Outside Lobbying (Manuscript available upon request)

An economic elite wants to buy a public asset, whose control is within the authority of an office and legacy motivated incumbent politician. The elite wants the asset and they want it cheap. In the extensive margin, the incumbent decides whether to sell or not; in the intensive margin, he decides at what price to sell. The main contribution of the paper is to uncover how the intensive margin creates an incentive for the elite to invest in outside lobbying ex-ante so as to get the asset as cheap as possible. In my framework, outside lobbying is the elite's use of their media to attack or to threaten the incumbent: they can affect his electoral fortunes by manipulating voter's beliefs about his competence. I show that the elite's optimal lobbying strategies take two broad forms on the equilibrium path: if the incumbent is unwilling to privatize, then the elite employs threats; if he is willing to privatize, the elite employs attacks. The paper shows that even in the absence of traditionally studied channels of influence (like bribery), the elite can induce significant variability in the asset sale prices. Both the outside lobbying strategies and the privatization prices emerge endogenously in equilibrium.

Machiavellian Fair Play: Programmatic Transfers and the Political Control of Information Effects

Can politicians benefit from programmatic transfers? I study an electoral accountability model in which an office-motivated incumbent politician, who can be of high or low competence, can design a long-term programmatic transfers policy which compromises the per-period budget that is otherwise used for the provision of public goods. In my framework, a transfers policy is not only less efficient than public goods provision but it is also an easier task —which results in transfers being less informative about the incumbent's competence. The main contribution of the paper is to show how non-linearities in the probability distribution of valence shocks brings to the front the informational differences of policy instruments: by allocating budget to transfers, the incumbent can exert direct control over the informativeness of his governance and, thereby, manipulate the probability distribution over probabilities of winning office. I show that the incumbent's optimal design of a transfers program is a solution to the trade-off between today's control of information revelation and the salience of politicians' ability in tomorrow's welfare. The resolution of this trade-off broadly depends on the incumbent's electoral lead or trail with respect to his challenger: when he is electorally trailing, then he is better off shutting down political selection with the implementation of a pervasive transfers program; and when he is leading, he makes a smoother use of transfers in order to both gamble on success (beliefs pushed upwardly) and not being hurt too much if the gamble backfires (beliefs pushed downwardly). The theoretical implication for empirical models is two-fold. First, the experimental ideal to isolate the causal effect of programmatic transfers on vote shares involves the randomization of the policy instrument itself, and not simply randomizing who becomes a beneficiary. And, second, that we can recover all the directions of causal effects through different empirical models exploiting some form of beneficiary-randomization —yet these estimates will not be of the theoretical interest of the researcher.