A Lobbying Game– All-Pay Auction with Free Riding
Yesterday I had my students play this lobbying game in
class:
For this game, some of you will be Manufacturing firms
and some Agricultural firms. The President is deciding
between two policies. Free Trade will yield $10 million in
benefit to each agricultural firm. Protectionism will yield
$10 million in benefit to each manufacturing firm. In each
year, each firm will write down its favored policy and its
lobbying expenditure, amount X, on a notecard and hand it
in. Whichever policy has the most lobbying wins. If your
favored policy wins, your payoff is 10-X. If it loses, your
payoff is -X.
In my class, which lasted 50 minutes, I had 11 Ag firms
and 10 Manufacturing firms. I imposed a limit of X=10 for a
firm’s annual lobbying. The pattern of lobbying went like
this:
Year Protection (Manufacturing) Free Trade (Agriculture) 1 49 48 2 48 61 3 0 30 4 52 43 5 21 25 6 56 42
It’s interesting that the total expenditure was often near
the total value of the policy prize over all the firms–100
or 110. Note, too, that the lobbying swung from high to low
a couple of times.
Within each industry, the amount of lobbying varied
tremendously, with lots of zeroes. The student who had the
highest payoff over all rounds had a payoff of 30, because
his policy won three times and he never did any lobbying.
We’d expect that– the free rider always does best, even
though if everyone free-rides, the industry does badly
because it always loses the policy battle.
This game is variant on the “all-pay auction”, with the
twist that the prize is a public good, going to any firm in
the industry rather than just the one that bids highest.
Thus, it adds that free-riding element. The theoretical
equilibrium is in mixed strategies– carefully chosen
randomizations each year.
My
lobbying game scoresheet
and overheads of lessons and caveats is up on the G202 course website. This is a good game for classroom use, not
just for teaching about free riding but also because it is
administratively easier than a lot of classroom games. The
payoff structure is very simple. After explaining the game,
I made each student a separate firm, and gave them each a
notecard on which to write their lobbying expenditure. Each
student brought up his notecard to me, except in the last
round, when I allowed an industry rep to collect them all
(which allows for enforcement of deals they might make to
all lobby high). For the first few rounds, I did not allow
talking, and then I did allow it. The students were
eager to talk with each other, and seemed to enjoy the game.