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Favors for Sale: Strategic Analysis of a Simple Menu Auction with Adverse Selection

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  • Laussel, Didier
  • Le Breton, Michel

Abstract

We study the distribution of a fixed amount of "favors" by an incumbent politician between two pressure groups, each of them offering to the agent a campaign contribution contingent on the quantity of "favors" received. Assuming that the total amount supplied is a private information of the politician the equilibrium contribution schedules are fully characterized. It is shown that the principals net equilibrium payoffs are larger the more quickly their marginal valuations of the favors decrease with the amount received. The equilibrium allocation of the stock of "favors" is efficient if the interest group utility functions are identical.
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Suggested Citation

  • Laussel, Didier & Le Breton, Michel, 2005. "Favors for Sale: Strategic Analysis of a Simple Menu Auction with Adverse Selection," IDEI Working Papers 361, Institut d'Économie Industrielle (IDEI), Toulouse.
    • Handle: RePEc:ide:wpaper:1309
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • L50 - Industrial Organization - - Regulation and Industrial Policy - - - General

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