1 Announcements: Tuesday You should read the pharmaceutical articles before section tomorrow. You will be applying todays lecture ideas. In the packet, the current order is: Section 11, Section 14, Paper Case, Section 12. It should be: Section 11, Section 12, Paper Case, Section 14.

2 Announcements: Thursday Next week: Read carefully the autodealers simulation for breakout. In the packet, the current order is: Section 11, Section 14, Paper Case, Section 12. It should be: Section 11, Paper Case, Section 12, Section 14.

3 G302, Week 10: Interest Groups and the Demand for Policy

4 Archer Daniels Midland Market failure: lysine price-fixing, $100M fine, prison sentences Government failure: 1994 EPA requirement that 10% of US gasoline sold be blended with ethanol

5 What you will learn today How to figure out who will win and who will lose in politics What determines whether political battles are public, or behind the scenes

6 The Political Marketplace _____________supplies laws _____________ demand laws Different groups bid for the laws they want. The currency is ultimately votes, in the U.S. Government Interest groups

7 First Cut: Surplus Analysis No ADM Law: PS=______ CS=________ A B C D EF G ADM Law: PS=____ CS=____ ADM= ____ DWL= ____ Supply Supply using ethanol Demand Quantity of gasoline P P0P0 P1P1 A+B+G C+D+E+F B+C D A+E F+G

8 Since ADMs gain is less than other interest groups losses, why was ADM successful? Write your answer on a notecard

9 Interest Group Analysis 1. Decide ______________________ ______________________________ 2. Figure out __________________ each group will actually take. 3. Decide how your company should respond. who should support the policy and who should oppose it how much political action

10 Marginal benefit of political action as substitutes appear Amount of action (fighting labor law change) Marginal benefit Fig 6.2a, Baron The company becomes able to move to Mexico

11 Marginal cost of political action as organizing costs increase Amount of action (fighting labor law change) Marginal cost Fig 6.2b, Baron A law is passed restricting trade associations from lobbying

12 The business decision Amount of action (fighting labor law change) Marginal benefit or cost Fig 6.2c, Baron MB MC 1 MC 0 A1A1 A0A0

13 The Demand For Policy What substitutes are available if the interest group fails politically? What is the total magnitude of benefit to the interest group? What is the per capita benefit to each member of the interest group?

14 Ability to Take Political Action How numerous are the members of the interest group? How good is their coverage of legislative districts? What resources are available to them? How costly would it be to organize the members to take action on this issue?

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16 Baron, fig. 6.6

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18 Why do we have sugar import quotas? (a) Sugar farmers have large benefits per capita and huge numbers (b) Sugar farmers have large benefits per capita and low costs of organizing (c) Sugar farmers have a large total magnitude of benefit and consumers have a small magnitude of loss (d) Sugar consumers have a large magnitude of benefit and have corn syrup as a substitute (e) Sugar consumers have complete coverage and large numbers 1. Did the sign-in sheet get around? 2. If you answered a question, bring up a notecard for me.

19 Your Companys Choices Increase awareness of potential allies Help with organizing costs of allies Choose a different policy, where you would have stronger allies or weaker opposition

20 Four Kinds of Politics Interest Group Politics: Special interests battle it out Majoritarian Politics: An issue big enough to attract general attention, so we expect the majority position to win Client Politics: Special interests become the clients of a few legislators Entrepreneurial Politics: A political entrepreneur arises to act for the dispersed interests who would benefit from the policy, or it will fail

21 When to Expect Each Kind of Politics Majoritarian Politics: The costs and benefits are spread widely, so special interests are less important. Interest Group Politics: Special interest groups are active on each side, because costs and benefits are concentrated. Client Politics: Opposition to your favored policy is disorganized. Entrepreneurial Politics: Support for a policy you oppose is disorganized. ___________________________ _________________________________________________ Your firms strategy does not matter. Your firms lobbying matters. A good opportunity for political success. If you act, you can block it unless the entrepreneur raises awareness enough.

22 The Four Kinds of Politics in Table Form Dispersed Concentrated DispersedConcentrated Policy Benefits Policy Costs (= benefits from opposing it) Interest group politics Client politics Entrepreneurial politics Majoritarian politics

23 Examples in Table Form Dispersed Concentrated DispersedConcentrated Policy Benefits Policy Costs phone access sugar quota capital gains tax landfill location