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Flexing Muscle: Corporate Political Expenditures as Signals to the Bureaucracy

Published online by Cambridge University Press:  08 June 2005

SANFORD C. GORDON  and
CATHERINE HAFER
SANFORD C. GORDON
Affiliation:
New York University
CATHERINE HAFER
Affiliation:
New York University
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Abstract

Regulatory agencies impose costs and benefits tailored to individual firms through their discretionary enforcement activities. We propose that corporations use political expenditures in part to “flex their muscles” to regulators and convey their willingness to fight an agency's specific determinations in the political arena. Because the signaling function of political expenditures is strategically complex, we derive a formal model wherein we demonstrate the existence of an equilibrium in which (1) large political donors are less compliant than smaller ones, but the bureaucracy monitors them less, and (2) firms with publicly observable problems reduce their political expenditures. We test the empirical implications of the model using plant-level data from the Nuclear Regulatory Commission on the inspection of 63 privately operated nuclear power plants and the political expenditures of their parent companies. We find strong evidence for the first prediction and qualified support for the second.

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ARTICLES
Information
American Political Science Review , Volume 99 , Issue 2 , May 2005 , pp. 245 - 261
Copyright
© 2005 by the American Political Science Association

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