Political Economy of Mass Media

1. Political Economy of Mass Media Maria Petrova New Economic School ESNIE, 4th June 2010

2. Outline Two big questions: • Is media important? • Any independent effect on people’s behavior? • Different counterfactuals: • Different media… • …or no media at all • If media is important, what it is important for? • If media is important, what drives media content?

3. Media effects

4. Traditional studies • People come to be interested in media effects during and after WWII • But: early studies did not find any effects • Self-selection to media consumption is the main problem • “Minimal effects” paradigm • Media reinforce existing beliefs and predispositions • Lazarsfeld, Berelson, and Gaudet 1948; Berelson, B. R., P. F. Lazarsfeld, and W. N. McPhee 1954; Klapper 1960

5. Does media matter? Examples • Fox News and 2000 Bush-Gore elections • Russian public television and elections of Unity and Vladimir Putin in 1999-2000 • German radio in 1930s and Nazi support • RTLM radio in Rwanda in 1994 and Tutsi genocide • Television and Mexican pivotal 2000 elections

6. Methodology • The main problem is self-selection • People choose media which reflect their preferences and prior beliefs • As a result, effects are either too small, if a study controls for individual pre-existing preferences, or too large, if a study does not do it • Need some exogenous variation to identify the effect • Field experiments (e.g. Gerber, Karlan, and Bergan 2009, free 10-week subscription to Washington Post or Washington Times)

7. Methodology - 2 • Another potential solution: use geography… • Ground conductivity, proportion of woodland (e.g. Strömberg 2004) • Irregular Terrain Model (ITM) and mountains (e.g. Olken 2009) • ITM and idiosyncrasy of Soviet times resource allocation (e.g. Enikolopov et al. 2010) • Elevation (our work in progress in Croatia)

8. Methodology - 3 • … or other source of idiosyncratic variation • Cable industry variables (DellaVigna and Kaplan 2007) • Different overlap between media markets and Congressional districts (Strömberg and Snyder 2009) • Variation in coverage due to Olympic Games or other exogenous events (Einesee and Strömberg 2007) • Different distance to the nearest newspaper publishing information about school grants in Uganda (Reinikka and Svennson 2004)

9. Questions • What are the outcomes? • Corruption • Voting behavior • Social capital • Violence • Consumption, investment… • Is the presence of media important? • i.e. compare situations with and without media • Is media content important? • i.e. compare situations with and without a particularly biased media outlet

10. Comparison of effects • Persuasion rates (DellaVigna Kaplan 2007, DellaVigna Gentzkow forthcoming) • How many people are convinced by a media outlet to change their behavior? Here i{T,C}, ei is the share of those receiving the message, yi is the share of those who adopt behavior of interest, y0 is share of those who would adopt it without the message

11. Voting studies • Effect of Fox News on Bush vote share • 11.6% (DellaVigna and Kaplan 2007) • Effect of NTV, the national channel independent from the government, on • vote share of opposition parties in Russia: 7.7% • vote share of pro-government party in Russia: 66% (Enikolopov, Petrova, Zhuravskaya 2010) • Effect of Washington Post free subscription on Democratic vote share • 19.5% (Gerber, Karlan, Bergan 2009) • Effect of unexpected Democratic endorsements on Gore vote share • 6.5% (Knight and Chiang 2009)

12. Turnout studies • Effects of different GOTV technologies (Gerber and Green 2000): • 15.6% persuasion rate for door-to-door canvassing • 1.0% persuasion rate of 1-3 mailing cards • Effect of the introduction of television in 50s and 60s (Gentzkow 2006): • 4.4% persuasion rate of exposure to television • Effect of newspaper entry in 19th and 20th century U.S. counties (Gentzkow and Shapiro 2009) • 12.9% persuasion rate of access to some local newspaper • Effect of local news in Spanish on turnout of Spanish population • 7.6 % effect on individual turnout in midterm elections, 3.5% effect in presidential elections

13. Mechanism of persuasion • Rational choice models, with media consumers • not fully discounting information from biased sources (e.g. Genzkow and Shapiro 2006; Petrova 2008; Gehlbach and Sonin 2009) • Behavioral models, with consumers • underestimating the biases in media content (e.g., Cain et al. 2005; Eyster and Rabin 2009), • thinking categorically (Mullainathan 2001; Mullainathan, Schwarzstein, and Shleifer 2008), or • double counting repeated information(DeMarzo, Vayanos, and Zwiebel 2003) • More detailed survey in DellaVigna and Gentzkow (forthcoming)

14. Outside United States… • Convincing evidence of media effects is scarce • Effect of West German television on anti-communism feelings in Eastern Germany (Hainmueller and Kern 2009) • Effect of RTLM radio on killing of Tutsi in Rwanda (Yanagizawa 2010) • Some studies which do not use field or natural experiments • Lawson and McCann (2005): media effects in Mexican 2000 elections • Ladd and Lenz (2009): Effect of unexpected change in endorsement pattern of Sun and Daily Star on vote for Labour in Britain • Reinikka and Svensson (2004): Effect of newspaper coverage of funding arrangements on school enrollment in Uganda

15. Overall • Hot topic for empirical research; many gaps in the literature • Media effects in countries other than U.S. • Other democratic countries • Authoritarian states and dictatorship • Historical studies • Media effects in other circumstances • Civil wars • International conflicts • Regime changes • Media effects on other types of behavior • Consumption, investment • Protest behavior • Firm’s strategy

16. Example: media effects in Russia in 1999

17. Motivationbased on Enikolopov, Petrova, Zhurvaskaya (2010) • Two stories • In August 1999, Putin, with popularity rating between 1 to 2%, was appointed as prime minister. Eight months later, he was elected president by getting 52.9% of the vote. • In December 1999 Parliamentary elections pro-government party, Unity, which did not even exist two months prior to the election, scored the second with 23.8% of the total vote • Mass media seem to play important role • The goal of the paper is to establish causal effect of media on voting behavior

18. Identification - 1 • Compute predicted availability of NTV, the only national channel independent from the government in 1999 • Use data on location and power of transmitters • Use ITM model (Hufford 2002, Olken 2008) which takes into account geographic obstacles to signal propagation to predict signal strength • Use signal strength and survey data to predict NTV availability • Compare subregions with different availability of NTV with region fixed effects included • Use signal strength as instrument for NTV exposure in individual-level analysis

20. Identification - 2 • Look at the determinants of availability of NTV transmitters • System of transmitters was inherited from Soviet educational channel • Transmitters were more likely to be located in large industrial towns, so 3 basic variables explain their location • Availability of transmitters not correlated with pre-existing political preferences after these 3 variables are taken into account • Placebo experiment • In 1995 NTV was not able to use this national system of transmitters • Check if NTV had any effect on voting in 1995

21. Results • Effects of predicted NTV availability • +6.3% on vote for opposition parties, positively covered by NTV • - 8.9% on vote for pro-government party, criticised by NTV • -3.8% on turnout • On individual level, significant effect of NTV even controlling for voting intentions 1 month before elections • Persuasion rates • 7.7% for positive message • 65.6% for negative message

22. Media bias

23. All the news that fits to print • What drives media slant? • Can we talk about media bias? • Who are the actors? • Media consumers • Media outlets • Potentially, some other group interested in media content • Government • Special interest groups • Advertisers • Journalists

24. Media bias • Discretion which media outlets have over content • Choice of topics • Choice of experts • Editorials • Endorsements • Reporting/non-reporting valuable information (e.g. the state of the world) • Assume that some unbiased point is defined… • Bias can be viewed as deviation from this unbiased point

25. Some measures • Experts cited by different members of Congress (Groseclose and Milyo 2005, Gasper 2009) • Language used by different members of Congress (Gentzkow and Shapiro 2010) • Support of Supreme Court decisions by editorials (Ho and Quinn 2008) • Recommendations of mutual funds with and without advertising (Reuter and Zitzewitz 2006)

26. Empirical evidence • Gentzkow and Shapiro (2010): • Use a measure of media bias based on phrases used by Democrats and Republicans in Congress, e.g. “war on terror” vs “war in Iraq” or “tax cut” vs “tax relief” • Evidence for demand-side effect, 20% media bias is explained by political preferences of local population • No evidence of economically significant supply-side effects • Reuter and Zitzewitz (2005): • Financial recommendations biased to mutual funds advertised in newspapers • No bias for Wall Street Journal

27. Supply-side explanations • Government • Besley and Prat 2006, Gehlbach and Sonin 2009, Qian and Yanagizawa 2009 • Journalists • Baron 2004, Puglisi 2006 • Special interest groups • Herman and Chomsky 1988, Dyck et al. 2008, Alston et al. 2010, Petrova 2008 • Advertisers • Baldasty 1992, Ellman and Germano 2009 • Political parties • Kaplan 2003, Petrova 2010

28. Examples • CBS and Abu Graib story (2004) • CBS received information • chairman of the Joint Chiefs of Staff personally called CBS anchor asking to suppress photos and videos • Secret-police chief Montesinos and TV channels in Peru (2000) • Bribes to TV owners were substantially higher than bribes to judges or members of parliaments • Small cable channel finally exposed bribe videos which facilitated the change of regime • General Motors and LA Times (2005) • GM cancelled its advertising contract with LA Times after a negative story about its products was published

29. Demand-side explanations • Some media consumers want media slanted in particular direction • Coverage consistent with their priors • Confirmatory bias (Rabin and Schrag 1999) • Models of media markets with consumers’ preferences for bias (Mullainathan and Shleifer 2005) or reputation Gentzkow and Shapiro 2006) • Models with exogenous changes of control in media markets (Durante Knight 2009) • Lippmann (1922) “a newspaper can flout an advertiser, it can attack a powerful banking or traction interest, but if it alienates the buying public, it loses one indispensable asset of its existence”

30. Effect of competition • Supply-side driven bias: competition helps • Increases incentive of media outlets to please the audience • Increases payment necessary for influencing media (e.g. Besley and Prat 2009) • Demand-side driven bias: competition does not necessarily reveals truth • Increases incentives of media outlets to stick to people’s priors (Gentzkow Shapiro 2006) • Allows consumers to self-segregate more effectively (MullainathanShleifer 2005)

31. Effect of advertising • Does increasing reliance on advertising revenues reduces supply-side media bias? • Theoretically, two answers: • Yes (BesleyPrat 2006, Gentkow et al. 2006, Gabszewicz et al. (2001, 2002) • It depends (Gehlbach and Sonin 2009, Petrova 2008) • Anecdotal evidence suggest advertising stimulated development of independent press in the U.S. • Baldasty, 2002, Smythe 2002, Starr 2004 • Empirically , true for American newspapers of 1880s • Petrova 2010

32. Overall • What determines media bias? • Interesting question, theoretically and empirically • Potential directions for future research: • How supply-side and demand-side interact in a two-sided market framework? • Media competition and interest group competition with heterogenous consumers • More empirical evidence for supply-side effects • More empirical evidence for countries other than United States

33. Example: how advertising revenues created an independent press

34. Argumentbased on Petrova (2010) • Higher advertising revenues create incentive for media to become independent • Theoretical conditions for advertising effect: • Besley and Prat (2006): independent media is always preferred by the audience • Gehlbach and Sonin (2008): truth is preferred and government does not want to intervene • Chen and Riordan (2007): market expansion increases variety • Gabszewicz et al. (2001): pooling equilibrium becomes possible • Gentzkow et al. (2006): size of bias does not matter • Necessary to look for empirical evidence

35. Empirical evidence • Data from unique dataset on independent and partisan newspapers in U.S. ,1881-1886 • Newspapers had political affiliation: Democratic, Independent, or Republican • Political affiliation implied control by political parties • through printing contracts • through access to political information • through convincing constituency to subscribe • Downside of party control: inability to choose editorial policy • Data on advertising rates and location of these newspapers

36. Methodology Main hypothesis: higher profitability of advertising makes newspapers more likely to be independent • Fixed effects estimation • county or newspaper fixed effects • Analysis of entry • IV results: • local laws and ordinances • outdoor advertising: strict regulation in some places, after Niagara Falls story • handbill and newspaper distribution

37. Results • Positive and significant effect of local profitability of advertising on newspapers’ independence • 2-3% higher probability of being independent after 1 standard deviation change • Changes to independent affiliation more likely • Entries of independent newspapers more likely • Implies within-county growth of advertising rates explains 32% of the growth of independent newspapers from 1881 to 1886

38. Thank you!