Party Competition under Private and Public Financing: A Comparison of Institutions

We propose a theory of party competition (two parties, single-issue) where citizens acquire party membership by contributing money to a party, and where a member's influence on the policy taken by her party is proportional to her campaign contribution. The polity consists of informed and uninformed voters: only informed voters join parties, and the party campaign chest, the sum of its received contributions, is used to reach uninformed voters through advertising. A party is a cooperative organization of its members. Parties compete with each other strategically with respect to policy choice and advertising. We propose a definition of political equilibrium, in which party membership, citizen contributions, and parties' policies are simultaneously determined, for each of four financing institutions, running the gamut between a purely private, unconstrained system, to a public system in which all citizens have equal financial input. Equilibria under these institutions are computed by simulation for an example. The representation and welfare properties of these four institutions are compared from these simulations.