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

An elite is interested in purchasing a public asset, whose control is within the authority of a re-election and legacy concerned incumbent politician. The elite not only wants to buy the asset, but wants to buy 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: equilibrium strategies can be non-monotonic, which induces non-monotonicity of 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

Why do politicians employ programmatic transfers and what determines its features? I study a model where an office and legacy motivated incumbent has a unit of budget which he can spend in the provision of public goods and transfers. In my framework, public goods provision is the most informative policy instrument regarding the incumbent's underlying competence; the use of transfers involve choosing the mass of beneficiaries (the extensive margin) and the size of the per-capita transfer (the intensive margin); and disposable income is correlated with voter information. I show the incumbent can increase his probability of re-election by using transfers, because they allow him to calibrate the informativeness of his governance and to manage the proportion of better informed voters. Further, the optimal allocation to a transfers program can display an inverted-U shape in the players' prior beliefs about the incumbent: when the incumbent is super-leading or super-trailing with respect to his challenger, using the budget for legacy-building today is the best gamble; and in between these extremes, there is a critical threshold of the prior after which the electoral gains from using transfers to induce voter learning starts to decay. I argue that the model can help us make sense of the mixed causal evidence of the effects of transfers on vote shares: the learning imbalance that this policy creates among beneficiaries and non-beneficiaries, together with the random components of performance, makes all the directions of causal effects to be positive probability events. Finally, the non-monotonicity in the allocation to transfers induces a non-monotonic probability distribution over measurable causal effects.