On the Form of Transfers to Special Interests

Abstract

An important question in political economy concerns the form of transfers to special interests. The Chicago view is that political competition leads politicians to make such transfers efficiently. The Virginia position is that lack of information on the part of voters leads politicians to favor inefficient "sneaky" methods of redistribution. This paper analyzes the form of transfers in a model of political competition in which politicians have incentives to make transfers to special interests. It shows that when voters have imperfect information about both the effects of policy and the predispositions of politicians, inefficient methods of redistribution may be employed.