An Economic Analysis of Campaign Finance

Andrea Prat

Published: June 2000

Electoral campaign finance is an important, and much debated, phenomenon in
democracies throughout the world. This article discusses a possible economic
model of campaign finance, which could be used for policy evaluation. At the
core of the model lies an asymmetry of information between lobbies and voters.
Lobbies know more than voters about the quality of candidates. Campaign
contributions constitute an indirect way to reveal lobbies’ information to voters.
However, this informational benefit comes at the cost of candidates deviating
from the median voter’s preferred policy in order to attract higher contributions.

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