Andrei Govorun Higher School of Economics

1. The Political Roots of Intermediated Lobbying: Evidence from Russian Firms and Business Associations Andrei Govorun Higher School of Economics William Pyle Middlebury College Israel Marques Columbia University, ICSID - HSE October 10, 2013

2. How Does Political Competition Shape Lobbying Strategies? • Focus on collective versus individual strategies • Business association channel is more common where there is more (less) political competition (concentration) • Officials consult encompassing associations more where there is more (less) political competition (concentration) • Suggests supply-side explanation – politicians’ incentives shape strategy

3. Why Study Strategy? • Normatively: Social welfare effects of lobbying are ambiguous: • sub-optimal political auctions (Grossman and Helpman 1994) or mitigation of informational asymmetries (Downs 1957)? • Encompassing channels, more likely to align outcomes with social welfare (Olson 1982) • Channels used may influence outcomes • Empirically: Recent focus on workings of autocratic legislatures • Rent allocation (Boix and Svolik 2013) vs. opposition bargaining (Gandhi 2008) • Accountability to Constituents (Malesky and Schuler 2010) • But do lobbying strategies differ?

4. Firms’ Strategic Calculus • Firms maximize: Pr(Success)*Benefits – Costs • Individual strategy (make) - Direct contact • Firm assumes all costs • No coordination Problems • No outside veto • Collective strategy (buy) - Business associations • Firms share costs • Coordination required among members • Members can veto others’ proposals

5. Institutions and Lobbying • Cost-benefit story (Demand Side) • Costs of lobbying increase as politicians to be lobbied increase (Tsebelis 1995, 2002) • The more diffuse the political system, the more expensive lobbying • Accountability story (Supply Side) • Politicians facing elections have incentives to provide public goods/encompassing benefits (Bueno de Muesquita et al. 2003) • Business associations plausibly screen for externality generating particularistic benefits • Politicians more likely to heed these encompassing interests

6. Hypotheses • Both stories are about the interaction of cost-benefit calculations and institutions • H1: As regions become more (less) politically competitive (concentrated), firms prefer to lobby through business associations. • But which actor is decisive is different in each story. Which mechanism applies? • H2: If the accountability story is true, the authorities should prefer encompassing BAs in politically competitive regions.

7. Data: Firm Survey • Survey of Russian firms (2010): • 1013 firms • 6 industrial sub-sectors and 4 non-industrial sectors • 169 Lobbied at the Regional Level • 61 regions - Regional indicators of democracy : • Moscow Carnegie Center Democracy Index • Effective Number of Parties (Region) • Press Freedom Index (Glasnost) • Margin of Victory (Duma and Region)

8. Channels of lobbying DV: If your firm attempts to influence the passage of new laws or normative acts at the regional level that are important to your business, in what way do you attempt to do this?

9. Model 1: Firm Survey Pr(BA_Lobbyi)= β*Democracyj + Firm level controlsi+ + Regional controlsj + εi Firm-level controls: • Firm size • Export dummy • Sector dummies • Settlement status • Holding Co. dummy Regional controls: Region size (population) GRP per capita • Ownership • BA Membership • Non-BA lobbying • Productivity indicators Multi-level modeling estimation (Varying Intercepts) Full sample and subsample of lobbying firms

10. Firm Level Predictors of Use of Business Associations • Hold for both lobbyers and non-lobbyers (except Alternative Strategy dummy) • Other variables are Insignificant Predictors

11. Lobbying Through Business Associations

12. Lobbying through Business Associations (Lobbyers)

13. Association survey • Survey of Russian associations (2010): • 313 associations (235 of which are regional) • 46 Regions • DV: “Do you agree that state officials at regional level are interested in associations’ participation in discussion and development of laws and regulations?“ • Yes (53.6%) • No (46.4%)

14. Association survey • Independent variables: Encompassingness • BA members' contribution to Regional GRP • Sectoral Composition: 88 sector specific and 145 multi-sectorassociations

15. Model 2 Pr(officials_interestedi) = β*Democracyj + γDemj*Encompassingnessi+ Association level controlsi+ Regional controls + εi Association level controls: • Association size • Funded by members’ donations • Branch of national BA Regional controls: Regional population GRP per capita Multi-level modeling estimation (Varying Intercepts and Slopes)

16. Officials’ Interest – GRP Concentration

17. Officials’ Interest - Sectoral Composition

18. Robustness Checks • Modeling strategy • Multi-level models and traditional probit with cluster corrected standard errors • Selection Effects • Institutional quality does not predict decision to lobby • Institutional quality does not predict Business Association membership • Additional Specifications • Firms: Manager characteristics, relationship to local officials, main markets, region’s share of profit tax in total revenue, and size of regional bureaucracy • BAs: BA members’ share of regional employment (alternative measure of encompassingness), region’s share of profit tax in total revenue, and size of regional bureaucracy

19. Conclusions • Firm survey suggests strategies are conditioned by political institutions: • As Democracy measure ↑, the probability of using Business Associations ↑ (and vice-versa) • Association survey suggests this has to do with politicians’ incentives: • Encompassing Business associations are more likely to be consulted in more democratic regions

20. Implications • Implications • Business state relations are potentially reinforced by lobbying strategy • If business associations represent encompassing interests, these interest are more likely to become policy in more competitive regions • Business Associations serve different purposes in different institutional settings • Future Research • How do strategies condition perceptions of lobbying success across different regimes? • How do the functions business associations serve vary with institutional setting?

21. Thank you for your attention. Questions?