Essays on the organizational economics of the lobbying market

This thesis contains three chapters examining firms’ behaviour and decision making when they seek to influence policies in the US through lobbying activities. The first chapter studies the main trade-off that firms face when they face the decision to integrate or outsource knowledge workers. The chapter proposes a model that predicts that firms requiring large firm-specific skills, or low levels of issue-specific skills, or facing a large number of transactions will integrate as opposed to outsource the service provider. Using a newly collected dataset on the US federal lobbying industry, I conduct firm-fixed effect estimations and I find strong evidence supporting the theoretical predictions. To provide further empirical evidence, I exploit a quasi-experiment that the Oil and Gas industry faced: The BP oil spill. The spill increased the issue-specific skills needed to conduct advocacy activities and in line with the theory developed in the chapter, I show that the affected industry started using more external, as opposed to internal lobbyists after the oil spill. The second chapter studies the effect of a technological upgrade on firms’ vertical integration decision. I use the model proposed in the first chapter to show that a technological shock, introduced by the Open Government Act decreased the cost of acquiring issue-specific skills, which in turn, made firms less likely to outsource. Then, I use structural models to measure the magnitude of this technological effect and conduct counterfactual exercises to study the influence that the regulation had on the industry. The third chapter studies the relationship between lobbying expenditures and market structure. I show that less and no more concentrated industries spend more on lobbying. To explain this empirical puzzle, I propose a theoretical model that includes the level of excludability in the payoffs. I provide empirical evidence that firms in less concentrated industries tend to lobby for more excludable goods and I show that including this dimension can explain the empirical puzzle. To provide causal evidence, I use national-level mergers that change citylevel market structures. Collecting a new data set of city-level lobbying expenditures, I show that controlling for the level of excludability in the payoffs, more concentrated industries spend more on lobbying efforts.