Wednesday, November 21, 2012

Regulating Lobbyists? Maybe Not...

You Owe Me

Ulrike Malmendier, Klaus Schmidt

NBER Working Paper No. 18543
Issued in November 2012
NBER Program(s):   HC   HE   LS
In many cultures and industries gifts are given in order to influence the recipient, often at the expense of a third party. Examples include business gifts of firms and lobbyists. In a series of experiments, we show that, even without incentive or informational effects, small gifts strongly influence the recipient’s behavior in favor of the gift giver, in particular when a third party bears the cost. Subjects are well aware that the gift is given to influence their behavior but reciprocate nevertheless. Withholding the gift triggers a strong negative response. These findings are inconsistent with the most prominent models of social preferences. We propose an extension of existing theories to capture the observed behavior by endogenizing the “reference group” to whom social preferences are applied. We also show that disclosure and size limits are not effective in reducing the effect of gifts, consistent with our model. Financial incentives ameliorate the effect of the gift but backfire when available but not provided. 


Anonymous said...

That "small gifts strongly influence particular when a third party bears the cost" shows the full pathology of the problem.

Tom said...

By the same rule, when your small gift is declined by the other party, you know negotiations will be rough.

When the cops grab you and want to "ask a few questions", they might offer you coffee or Coke. Decline.