Lobbying in the presence of a (non) benevolent policymaker

We consider a model where the preferences of a special interest group contrast with those of a benevolent policymaker who wishes to maximize welfare. The consequences of a chosen policy depend on the state of the world, which is privately known to the interest group. The policymaker type - benevolent or corrupt - is unknown to the interest group, but her response to its message and lobbying effort depends on her type. We characterize the Perfect Bayesian Equilibrium of this game and show that, expected welfare is decreasing in the probability that the policymaker is corrupt and decreases faster when this probability is above one-half. Our results suggest that, corruption can be tolerated until a certain level, from which it becomes destructive.

Joint with Artyom Jelnov.