- Email: [email protected]
Mass media and public policy
European Economic Review 45 (2001) 652}663
Mass media and public policy David StroK mberg* IIES, Stockholm University, S106 91 Stockholm, Sweden
Abstract If more informed voters receive favorable policies, then mass media should in#uence policy because it provides most of the information people use in voting. This paper uses a simple model to analyze the e!ect of mass media provision of news on a number of policy issues: redistribution, the size of the government sector, rents and corruption, the e!ectiveness of lobby groups and political business cycles. It is easy to deal with such a wide range of issues because existing models of political competition often include informed and uniformed voters. Modelling mass media simply endogenizes who is informed and who is not. The paper also discusses empirical evidence and point to areas for future research. 2001 Elsevier Science B.V. All rights reserved. JEL classixcation: H1; D7; D8 Keywords: Mass media; Public policy; Information; Elections
1. Introduction The political in#uence of mass media is something that policy makers and the public discuss a great deal, but about which economists studying policy making have had little to say. A few recent papers indicate that a change may be taking place, however. In this paper, a simple model is used to illustrate the main theoretical arguments in some of these contributions, to discuss empirical evidence and to point to areas for future research. homepage: http://www.iies.su.se/&stromber * Corresponding author. Tel.: #46-8-164-376; fax: #46-8-161-443. E-mail address: [email protected] (D. StroK mberg). 0014-2921/01/$ - see front matter 2001 Elsevier Science B.V. All rights reserved. PII: S 0 0 1 4 - 2 9 2 1 ( 0 1 ) 0 0 1 0 6 - 4
D. Stro( mberg / European Economic Review 45 (2001) 652}663
653
The logic why mass media should in#uence policy is simple. If more informed voters receive favorable policies, then mass media should matter because they provide most of the information people use in voting. A majority of survey respondents regularly cite TV and newspapers as their principal sources of political information. Further, the media do not distribute information uniformly to everyone but face di!erent incentives to deliver news to di!erent groups. This paper uses a modi"ed version of the model in StroK mberg (1999a) to analyze the e!ect of mass media on a number of policy issues: Redistribution, the size of the government sector, rents and corruption, the e!ectiveness of lobby groups, and political business cycles. It is easy to deal with such a wide range of issues because existing models of political competition often include informed and uniformed voters. Modelling mass media simply adds to these models by endogenizing who is informed and who is not. Mass media may in#uence policy in a number of ways. First, mass media may in#uence electoral competition because it is the channel through which politicians convey campaign promises to a forward-looking electorate; see StroK mberg (1999a). Second, mass media may be of importance for policy because it informs backward-looking voters about actions taken by the politicians which are not directly observable, such as budget de"cits, or about who is responsible for cuts or increases in programs they care about; see StroK mberg (1999b). Finally, media may in#uence policy by in#uencing the weight voters put on di!erent issues in their voting choice; see McCombs and Shaw (1972), and Besley and Burgess (2000). Which type of media in#uence is more realistic depends on the issue studied. The importance of information in elections is discussed at length by Downs (1957), and formalized by, for example, Baron (1994) and Grossman and Helpman (1996). In the formal models, mass media play no part. Models of media "rms are instead found in the industrial organization literature, see for example, Spence and Owen (1977). An empirical political science literature provides us with a few facts about the e!ects of mass media on politics. The classic study in this "eld, Lazarsfeld et al. (1948), found that mass media only had minimal e!ects in persuading voters to change their votes. Another "nding of Lazarsfeld et al., was that people using mass media perceived the candidates' stands more accurately. This "nding has been con"rmed by a number of studies; see, for example, Delli Carpini and Keeter (1996). Finally, mass media has been found to a!ect the importance voters attach to an issue. Evidence in favor of this has been presented by Iyengar and Kinder (1991) in an experimental study. The model of this paper is consistent with these "ndings.
2. Mass-media competition This section provides a modi"ed version of the model in StroK mberg (1999a) of the interaction between mass media and electoral competition. Consider a
D. Stro( mberg / European Economic Review 45 (2001) 652}663
654
society with two distinct groups of voters, indexed by s and t. Members of group s bene"t from a government program paid for by the members of group t. Preferences over government policy are identical for every member of each group and given by u (s, t)"ln (s), Q For members in group s and u (s, t)"1!t, R For members in group t. Each group j3s, t has a continuum of voters of mass n . Any feasible H government policy must satisfy the budget constraint n s#r"n t. Q R The component r re#ects endogenous rents to politicians. These rents could be either outright theft of government resources, or more generally represent ine$ciencies in the public sector that are costly for the politician to avoid. Before the election, two parties, A and B, simultaneously and independently announce their policy platforms, consisting of taxes and spending on the government program (thus implicitly determining rents). A monopoly newspaper covers the election platforms. The newspaper devotes news space q to the Q spending issue and q to taxes. R To analyze the newspaper's incentives to cover the platforms, the demand for newspapers is now derived. Knowing the parties' election platforms on spending allows voters in group s to take an action increasing their utility by 1. Similarly, knowing the election promise on taxes allows voters in group t to take an action increasing their utility by 1. The chance that a voter will spot an article of size q and realize the value of the news equals (q)"min((q,1). The value of information about spending and taxes is then (q ) and (q ), respectively. Voter Q R i also cares about other exogenous aspects of the newspaper captured by the parameter . A voter i in group j will buy a newspaper if G (q )# 5p. H G The price of the newspaper is assumed to be "xed, and p! is uniformly G distributed on [0,1]. The share in group j that buys the newspaper is then (q )"(q ). H H After having determined the demand, I now turn to the costs of the newspaper. These are assumed to be of the form c(q #q ) # n (q )d #n (q )d , GFHFI Q R Q Q Q R R R GFFFHFFFI
C( ) )"
(1)
D. Stro( mberg / European Economic Review 45 (2001) 652}663
655
where d is the average cost of reproducing and delivering newspapers to people H in group j. The cost categories are those suggested by Rosse and Dertouzos (1979). The costs of gathering, editing, and writing news are proportional to the amount of news space allocated to election promises on taxes and government spending. Note that newspapers are increasing-returns-to-scale industries as the average cost is decreasing in the number of copies sold. This increasing-returnsto-scale feature is common to all media as the costs of gathering, editing and writing news do not depend on the number of people using the media. Given the demand and cost of newspapers, the news choice can be analyzed. Let p "p!d , the price of the newspaper minus the average delivery cost to H H people in group j. The newspaper maximizes expected pro"ts n (q )p #n (q )p !c(q #q ). Q Q Q R R R Q R The pro"t maximizing news mix is
q" H
np H H. c
Those voters who have bought a newspaper and found news about a campaign promise become informed about tax or spending promises. These constitute a share np "(q )(q )" H H H H H c
(2)
of the members of group j3s, t. I assume that n p (2c, so that (1. H H H The share of voters that is endogenously informed by mass media about election promises is larger for (i) large groups, n , and (ii) groups to which it is H inexpensive to deliver newspapers, p . That people are disproportionately inH formed about large programs is a direct consequence of the increasing-returnsto-scale feature of mass media. In StroK mberg (1999a), the newspaper's price in both the subscription and the advertisement market is endogenous as is the value of news. This does not change the above conclusions, but adds some new features discussed in that paper.
3. Electoral competition Apart from policy, voters also care about other exogenous characteristics of the parties, captured by parameters #. The parameter represents an G G individual speci"c preference in favor of party B and represents the general popularity of party B. They are both uniformly distributed on [!, ]. A share of the voters in group j is informed about the platform announceH ment by mass media. These voters prefer the platform of party A, (s , t ), to that
656
D. Stro( mberg / European Economic Review 45 (2001) 652}663
of party B, (s , t ), if u (s , t )!u (s , t )" u 5 #. H H H G The other voters are not aware of the exact platform announcements, and base their votes on what they expect these platforms to be E[u (s , t )!u (s , t )]" uN 5 #. (3) H H H G The expectation is based on an underlying uncertainty about preferences, modelled explicitly in StroK mberg (1999a). The probability that party A will win the election is 1 n n P " # Q ( u #(1! ) uN )# R ( u #(1! ) uM ), Q Q R R n Q Q n R R 2
(4)
and P "1!P . The parties act to maximize P((R#r), the expected value of rents and an exogenous value of being in o$ce, R, J3A, B. In the unique political Nash equilibrium, the parties set the policy s" Q , R n r" !R, 2 R and thus
(5) (6)
1 n R t" # Q Q ! . (7) 2 n n R R R R The endogenous values of and are given by Eq. (2). Note that a social Q R planner would set s"1, r"0, t"n /n . Media's e!ects on spending, rents and Q R taxes will now be discussed. Equilibrium spending on program s, is increasing in the informed people who bene"t from this program, , relative to the share of informed taxpayers, . Q R This implies that redistributive spending is higher for programs that are intensely covered by media, in other words, programs that concern large groups, and groups to which it is cheap to deliver news. The model also predicts that groups with many media users, (q ), are more Q e!ective in attracting government spending. This prediction has been tested by StroK mberg (1999b) in a cross-sectional study of the allocation of New Deal funds across 3000 US counties. It "nds that counties with a large number of radio users were signi"cantly more successful in attracting these funds, controlling for a large set of variables. The e!ects are found to be signi"cantly larger in rural than in urban counties, perhaps because urban counties already had good access to daily newspapers. As a result, the expanding use of the radio signi"cantly increased the ability of rural America to attract government transfers.
D. Stro( mberg / European Economic Review 45 (2001) 652}663
657
Media's e!ect on rents, r, is straightforward: the more informed taxpayers, the lower are government rents. The reason is that the costs in terms of votes of proposing ine$cient policies are higher the more voters are informed. Empirically, we would expect to see more corruption and generally less e$cient government policies in countries or regions where only few voters have access to an independent media source. The e!ect on taxes is less straightforward. On the one hand, mass media provision of news is likely to decrease taxes since its cost structure makes it more pro"table to cover parties' positions on taxes, than on small government programs. In consequence, most people will be aware of the parties' positions on taxes, which will make tax increases very costly politically. On the other hand, the increased use of mass media by low-income voters after the introduction of radio and TV should make a larger number of these voters responsive to policies targeted to them, which may increase taxes. Empirically, the latter e!ect could be identi"ed by studying how the size of the government sector is related to the expanding use of radio and TV. To my knowledge, there exists no empirical study of the e!ects of mass media on the growth of the government sector.
4. Lobby groups Next, I follow Grossman and Helpman (1996), and allow the groups to organize in lobbies to in#uence electoral competition. Assume that only the small group bene"ting from the government program, s, can overcome the free-rider problem in lobbying (Olson, 1965) and organize. The lobby group o!ers the parties contribution schedules contingent on the platforms the parties adopt. The platforms are then announced and contributions paid accordingly. Finally, media inform some of the voters of the platforms, and elections take place as before. In the model of Grossman and Helpman, uninformed voters are a!ected by campaign rhetoric. In particular, if party A spends C and party B spends C on campaigning, then an uninformed voter casts his ballot for party A if h(C !C )5 #, (8) G where h is a positive constant determining the e!ect of campaign spending on votes. The probability of party A winning the election is found simply by replacing uM and uM by h(C !C ) in Eq. (4). It is assumed that only the lobby Q R group leaders (of measure zero) are directly informed about the platforms. This is not essential, the model is easily solved with any share exogenously informed members of the group s. Suppose that rents are zero. Party J maximizes P(R. Let (sH, tH) denote the best policy for party J, should it not accept the lobby group's proposal. To induce party J to choose another policy, the lobby must at least o!er
658
D. Stro( mberg / European Economic Review 45 (2001) 652}663
contributions so that P((s(, t(, C()R"P((sH, tH, 0)R. Using the expression for P(, this amounts to n (u (sH, tH)!u (s(, t())#n (u (sH, tH)!u (s(, t()) Q R R R R C(" Q Q Q , hn(1!)
(9)
where is the average share of informed voters in the population. Suppose that the lobby decides to give the two parties exactly what is needed to induce them to support the platforms (s , t ) and (s , t ), but nothing more. With these contributions, party A receives P "P (sH, tH, 0)" of the votes, no matter what policy is implemented. The lobby group's problem becomes that of choosing the two platforms to maximize its members' total expected utility, net of contributions, P n u (s , t )#P n u (s , t )!C !C . Q Q Q Q Given that P "P " and that contributions satisfy Eq. (9), the lobby group chooses to have party J propose the platform that maximizes n u (s(, t()#n u (s(, t() R R R n u (s(, t()# Q Q Q . Q Q hn(1!) This should be compared to the social planner solution which maximizes n u (s, t)#n u (s, t). Q Q R R Comparing the two expressions, it is clear that the policy bias is proportional to 1 (1!) Q# n h 2 R R where the endogenous values of and are given by Eq. (2). Q R Media will decrease the policy distortion favoring the organized group in two ways. First, the IRS feature of mass media will make it cover issues concerning dispersed large group more than issues that concern small interests. In one sense, mass media provide politicians with a megaphone that reaches exactly the large, dispersed taxpayer groups which may otherwise be disadvantaged since they cannot overcome the free-rider problem and organize in lobbies. Second, by reducing the share of uninformed voters (1!), the e!ectiveness of campaign rhetoric is reduced. Therefore, the expanding use of mass media may have had an impact, by lowering particular bene"ts and, for example, trade barriers. Empirically, we should expect to "nd lower trade-barriers in countries where a large share of the electorate has access to free media. A caveat is in place; since the in#uence of campaign spending on the electorate is not explicitly modelled, there may be other e!ects of mass media on the e!ectiveness of campaign rhetoric, now captured by the constant function h(C !C ).
D. Stro( mberg / European Economic Review 45 (2001) 652}663
659
5. Election cycles This section modi"es the model to explain how mass media provision of news a!ects political business cycles and how mass media may in#uence policy by a!ecting the weight voters put on di!erent issues. In this modi"ed model, an incumbent must allocate a "xed budget, I, on two uses n s#ny"I, Q where s is per capita spending in a speci"c program bene"ting n voters and y is Q per capita spending in a general program bene"ting all n voters. Rents are assumed to be zero. The structure of the model is similar to Rogo! (1990). However, politicians here have diwerent competence in di!erent policy areas. The competence in program j3s, y at time is , a moving average of shocks to competence in HO the current and immediately preceding period " # . HO HO HO\ The competence shocks are drawn from a standard normal distribution. HO The utility in these programs depends not only on the politicians' competence, but also on factors such as the local administration of the program. The local factors are captured by parameters and which are independently drawn QGO WGO from a standard normal distribution. The utility a voter i in group s derives from program s at time is ln(s)# # , QO GQO whereas the utility derived from the general bene"t program is y# # . WO GWO The horizon is in"nite and elections are held every other period. The timing in each period is the following. (i) Everyone observes the competence shocks of the previous period, . An incumbent politician chooses policy without knowing HO\ his own competence shocks, . (ii) The values of the competence and the local HO factor shocks are realized and each individual observes his own utility. Some voters are informed by the media about the utility realizations of other individuals, and can better separate the incumbents' competence from confounding local factors. (iii) If it is an election period, elections are held. If the incumbent is defeated, an opponent is appointed with competence shocks and drawn HO HO\ from a standard normal distribution. The incumbent's expected competence after the election in area j equals ( " ( . A voter in group s votes to re-elect if the incumbent's expected HO> HO competence in the area he cares about is su$ciently high to overcome the
660
D. Stro( mberg / European Economic Review 45 (2001) 652}663
exogenous preference for the opponent, , G ( # ( 5 , QO WO G while voters in group y re-elect if ( 5 . WO G Each parameter is again uniformly distributed on [!, ]. G Voters base their expectation of the incumbent's competence in program s, ( , on a signal from mass media, , containing m news stories, each covering QO Q Q one randomly drawn utility realization. This signal is normally distributed with mean ln(z)# and variance 1/m . After receiving signals of m and m utility QO Q Q W realizations, voters update their priors about the incumbent's competence in both policy areas: ( " ( !ln(s )! ), QO Q Q QO\ ), ( " ( !y ! WO\ WO W W where (s , y ) is the equilibrium policy and the precisions of the signals are m Q , " Q 1#m Q m W . " W 1#m W The incumbent has lexicographic preferences, he "rst and foremost cares about expected rents, P'R, and thus about winning the election. When policy has no e!ect on the election, he sets policy to maximize welfare. The probability that the incumbent wins the election is P'"F[n (ln(s)!ln(s ))#n (y!y )], Q Q W where F is a normal distribution with mean zero and variance np #np . In Q Q W the unique solution to the problem of maximizing expected rents, the incumbent sets s " Q, Q W and hence y"I!n Q , (10) Q W in election periods. In o!-election periods, he sets s "1 to maximize welfare. Q
D. Stro( mberg / European Economic Review 45 (2001) 652}663
661
As the media write more stories in an area, people get more precise information about the incumbent's competence in this area and are willing to move their priors more. This will cause voters in group s, who care about both programs, to increase the weight they put on this program in their election choices. This is similar in spirit to the Agenda Setting Theory of McCombs and Shaw (1972) which argues that media do not only transmit facts but also information about what issues are important to the voters. The mass media model is now slightly modi"ed. Instead of news space, q , the Q newspapers allocate editorial resources to cover m and m utility realizations. Q W The "rst copy costs in Eq. (1) are then c(m #m ) instead of c(q #q ). Q W Q W Assume that a signal containing m observations has value max(1, (m ) to H H voters in program j. Given these assumptions, the pro"t maximizing news mix is (disregarding integer problems)
m" Q
np Q Q, c
m " W
np . c
Media again cover more extensively issues concerning large groups and groups to whom it is cheap to deliver newspapers. During election periods, the incumbent will boost the program receiving most coverage in the press. In o!-election periods, the incumbent faces no re-election motives and thus sets the optimal policy s "1. Therefore, we will see an Q election cycle in the composition of spending. The program that will be boosted before elections may, in general, vary as news coverage varies. But, on average, we should more often see pre-election boosts in large programs, such as general bene"t programs and tax programs, and programs bene"ting groups using mass media a great deal. Note also that by observing which policies receive extensive mass media coverage, we can identify the programs politicians will be tempted to expand prior to elections. Naturally, mass media is not the only information source, and some policy areas are inherently easier to monitor than others. To explore the implications of this in the model, let s be a cash transfer program where local factors have no e!ect on the utility from the program, so that p "1. Then, more news provision Q on issue y will make the election cycles smaller because it will make p /p , Q W approach 1. In other word, as voters become better informed, it becomes more di$cult to hide the costs of pre-election expansions in less monitored programs and electoral policy cycles become smaller. In a panel study of 123 developed and developing countries over a 21-year period, Shi and Svensson (2000) "nd evidence of politically motivated policy cycles. Further, consistent with this theory, these cycles are smaller in countries where many voters have radios and where radio broadcasting is free from government intervention.
662
D. Stro( mberg / European Economic Review 45 (2001) 652}663
6. A research agenda Because of its unique role in transmitting information to mass audiences, mass media is likely to a!ect policies. Still, it is only very recently that media have been incorporated in formal political economy models, and the empirical e!ects of media on policy remain mainly unexplored. This paper discusses how information provision by mass media may a!ect a number of policy issues. A main theme is that mass media increases the political clout of large, dispersed, groups at the expense of small ones. This feature is likely to reduce the political in#uence of small, well organized specialinterest groups, as well as unorganized minority groups. The model also presents a number of testable hypotheses concerning mass media's e!ect on redistribution, taxes, corruption, trade-barriers, and political business cycles. So far, most of these hypotheses have not been tested empirically, although some work begins to emerge; see Besley and Burgess (2000) concerning mass media's e!ects on the government's responsiveness to droughts in India, Shi and Svensson (2000) concerning mass media's e!ects on political business cycles and StroK mberg (1999b) concerning mass media's e!ect on redistributive spending. Still many questions remain. Empirically, it would, for example, be interesting to know whether increased media coverage of a government program service leads to more spending, and whether mass media covers issues that large groups care about more intensely. Theoretically, the incentives created by the mutual dependence of politicians and journalists are interesting. Journalists are supposed to monitor politicians on behalf of the voters, yet, they depend on politicians for much of their information. Another topic deserving further theoretical investigation is the interaction between mass media and lobby groups. The reduced form in#uence function clearly leaves many questions unanswered, and the incentive e!ects of mass media revenues from political advertisements paid for by lobbies should be analyzed. To sum up: the policy implications of mass media are likely to be important, but have largely been neglected by economists. A large number of empirical and theoretical topics seem to merit future research. Acknowledgements Financial assistance from the Jan Wallander and Tom Hedelius Foundation is gratefully acknowledged. References Baron, D.P., 1994. Electoral competition with informed and uninformed voters. American Political Science Review 88, 33}47.
D. Stro( mberg / European Economic Review 45 (2001) 652}663
663
Besley, T., Burgess, R., 2000. Does media make government more responsive? Theory and evidence from Indian famine relief policy. Mimeo., London School of Economics. Delli Carpini, M.X., Keeter, S., 1996. What Americans Know about Politics and Why It Matters. Yale University Press, New Haven, CT. Downs, A., 1957. An Economic Theory of Democracy. Harper and Row, New York. Grossman, G.M., Helpman, E., 1996. Electoral competition and special interest politics. The Review of Economic Studies 63, 265}286. Iyengar, S., Kinder, D.R., 1991. News That Matters: Television and American Opinion. University of Chicago Press, Chicago, IL. Lazarsfeld, P.F., Berelson, B., Gaudet, H., 1948. The People's Choice: How the Voter Makes Up His Mind in a Presidential Campaign. Columbia University Press, New York. McCombs, M.E., Shaw, D.L., 1972. The agenda-setting function of mass media. Public Opinion Quarterly 36, 176}187. Olson, M., 1965. The Logic of Collective Action. Harvard University Press, Cambridge, MA. Rosse, J.N., Dertouzos, J.N., 1979. The Evolution of One Newspaper Cities. In: Federal Trade Commission, Proceedings of the Symposium on Media Concentration, Vol. 2. Government Printing O$ce, Washington, DC, pp. 429}471. Rogo!, K., 1990. Equilibrium political budget cycles. American Economic Review 80 (1), 21}36. Shi, M., Svensson, J., 2000. Conditional political business cycles: Theory and evidence. Mimeo., Stockholm University, Stockholm. Spence, M., Owen, B., 1977. Television programming, monopolistic competition and welfare. Quarterly Journal of Economics 91, 103}126. StroK mberg, D., 1999a. Mass-media competition, political competition, and public policy. In: The Politics of Public Spending, Ph. D. Dissertation, Princeton University, Princeton, NJ. StroK mberg, D., 1999b. Radio's impact on new deal spending. In: The Politics of Public Spending, Ph. D. Dissertation, Princeton University, Princeton, NJ.
Mass media and public policy David StroK mberg* IIES, Stockholm University, S106 91 Stockholm, Sweden
Abstract If more informed voters receive favorable policies, then mass media should in#uence policy because it provides most of the information people use in voting. This paper uses a simple model to analyze the e!ect of mass media provision of news on a number of policy issues: redistribution, the size of the government sector, rents and corruption, the e!ectiveness of lobby groups and political business cycles. It is easy to deal with such a wide range of issues because existing models of political competition often include informed and uniformed voters. Modelling mass media simply endogenizes who is informed and who is not. The paper also discusses empirical evidence and point to areas for future research. 2001 Elsevier Science B.V. All rights reserved. JEL classixcation: H1; D7; D8 Keywords: Mass media; Public policy; Information; Elections
1. Introduction The political in#uence of mass media is something that policy makers and the public discuss a great deal, but about which economists studying policy making have had little to say. A few recent papers indicate that a change may be taking place, however. In this paper, a simple model is used to illustrate the main theoretical arguments in some of these contributions, to discuss empirical evidence and to point to areas for future research. homepage: http://www.iies.su.se/&stromber * Corresponding author. Tel.: #46-8-164-376; fax: #46-8-161-443. E-mail address: [email protected] (D. StroK mberg). 0014-2921/01/$ - see front matter 2001 Elsevier Science B.V. All rights reserved. PII: S 0 0 1 4 - 2 9 2 1 ( 0 1 ) 0 0 1 0 6 - 4
D. Stro( mberg / European Economic Review 45 (2001) 652}663
653
The logic why mass media should in#uence policy is simple. If more informed voters receive favorable policies, then mass media should matter because they provide most of the information people use in voting. A majority of survey respondents regularly cite TV and newspapers as their principal sources of political information. Further, the media do not distribute information uniformly to everyone but face di!erent incentives to deliver news to di!erent groups. This paper uses a modi"ed version of the model in StroK mberg (1999a) to analyze the e!ect of mass media on a number of policy issues: Redistribution, the size of the government sector, rents and corruption, the e!ectiveness of lobby groups, and political business cycles. It is easy to deal with such a wide range of issues because existing models of political competition often include informed and uniformed voters. Modelling mass media simply adds to these models by endogenizing who is informed and who is not. Mass media may in#uence policy in a number of ways. First, mass media may in#uence electoral competition because it is the channel through which politicians convey campaign promises to a forward-looking electorate; see StroK mberg (1999a). Second, mass media may be of importance for policy because it informs backward-looking voters about actions taken by the politicians which are not directly observable, such as budget de"cits, or about who is responsible for cuts or increases in programs they care about; see StroK mberg (1999b). Finally, media may in#uence policy by in#uencing the weight voters put on di!erent issues in their voting choice; see McCombs and Shaw (1972), and Besley and Burgess (2000). Which type of media in#uence is more realistic depends on the issue studied. The importance of information in elections is discussed at length by Downs (1957), and formalized by, for example, Baron (1994) and Grossman and Helpman (1996). In the formal models, mass media play no part. Models of media "rms are instead found in the industrial organization literature, see for example, Spence and Owen (1977). An empirical political science literature provides us with a few facts about the e!ects of mass media on politics. The classic study in this "eld, Lazarsfeld et al. (1948), found that mass media only had minimal e!ects in persuading voters to change their votes. Another "nding of Lazarsfeld et al., was that people using mass media perceived the candidates' stands more accurately. This "nding has been con"rmed by a number of studies; see, for example, Delli Carpini and Keeter (1996). Finally, mass media has been found to a!ect the importance voters attach to an issue. Evidence in favor of this has been presented by Iyengar and Kinder (1991) in an experimental study. The model of this paper is consistent with these "ndings.
2. Mass-media competition This section provides a modi"ed version of the model in StroK mberg (1999a) of the interaction between mass media and electoral competition. Consider a
D. Stro( mberg / European Economic Review 45 (2001) 652}663
654
society with two distinct groups of voters, indexed by s and t. Members of group s bene"t from a government program paid for by the members of group t. Preferences over government policy are identical for every member of each group and given by u (s, t)"ln (s), Q For members in group s and u (s, t)"1!t, R For members in group t. Each group j3s, t has a continuum of voters of mass n . Any feasible H government policy must satisfy the budget constraint n s#r"n t. Q R The component r re#ects endogenous rents to politicians. These rents could be either outright theft of government resources, or more generally represent ine$ciencies in the public sector that are costly for the politician to avoid. Before the election, two parties, A and B, simultaneously and independently announce their policy platforms, consisting of taxes and spending on the government program (thus implicitly determining rents). A monopoly newspaper covers the election platforms. The newspaper devotes news space q to the Q spending issue and q to taxes. R To analyze the newspaper's incentives to cover the platforms, the demand for newspapers is now derived. Knowing the parties' election platforms on spending allows voters in group s to take an action increasing their utility by 1. Similarly, knowing the election promise on taxes allows voters in group t to take an action increasing their utility by 1. The chance that a voter will spot an article of size q and realize the value of the news equals (q)"min((q,1). The value of information about spending and taxes is then (q ) and (q ), respectively. Voter Q R i also cares about other exogenous aspects of the newspaper captured by the parameter . A voter i in group j will buy a newspaper if G (q )# 5p. H G The price of the newspaper is assumed to be "xed, and p! is uniformly G distributed on [0,1]. The share in group j that buys the newspaper is then (q )"(q ). H H After having determined the demand, I now turn to the costs of the newspaper. These are assumed to be of the form c(q #q ) # n (q )d #n (q )d , GFHFI Q R Q Q Q R R R GFFFHFFFI
C( ) )"
(1)
D. Stro( mberg / European Economic Review 45 (2001) 652}663
655
where d is the average cost of reproducing and delivering newspapers to people H in group j. The cost categories are those suggested by Rosse and Dertouzos (1979). The costs of gathering, editing, and writing news are proportional to the amount of news space allocated to election promises on taxes and government spending. Note that newspapers are increasing-returns-to-scale industries as the average cost is decreasing in the number of copies sold. This increasing-returnsto-scale feature is common to all media as the costs of gathering, editing and writing news do not depend on the number of people using the media. Given the demand and cost of newspapers, the news choice can be analyzed. Let p "p!d , the price of the newspaper minus the average delivery cost to H H people in group j. The newspaper maximizes expected pro"ts n (q )p #n (q )p !c(q #q ). Q Q Q R R R Q R The pro"t maximizing news mix is
q" H
np H H. c
Those voters who have bought a newspaper and found news about a campaign promise become informed about tax or spending promises. These constitute a share np "(q )(q )" H H H H H c
(2)
of the members of group j3s, t. I assume that n p (2c, so that (1. H H H The share of voters that is endogenously informed by mass media about election promises is larger for (i) large groups, n , and (ii) groups to which it is H inexpensive to deliver newspapers, p . That people are disproportionately inH formed about large programs is a direct consequence of the increasing-returnsto-scale feature of mass media. In StroK mberg (1999a), the newspaper's price in both the subscription and the advertisement market is endogenous as is the value of news. This does not change the above conclusions, but adds some new features discussed in that paper.
3. Electoral competition Apart from policy, voters also care about other exogenous characteristics of the parties, captured by parameters #. The parameter represents an G G individual speci"c preference in favor of party B and represents the general popularity of party B. They are both uniformly distributed on [!, ]. A share of the voters in group j is informed about the platform announceH ment by mass media. These voters prefer the platform of party A, (s , t ), to that
656
D. Stro( mberg / European Economic Review 45 (2001) 652}663
of party B, (s , t ), if u (s , t )!u (s , t )" u 5 #. H H H G The other voters are not aware of the exact platform announcements, and base their votes on what they expect these platforms to be E[u (s , t )!u (s , t )]" uN 5 #. (3) H H H G The expectation is based on an underlying uncertainty about preferences, modelled explicitly in StroK mberg (1999a). The probability that party A will win the election is 1 n n P " # Q ( u #(1! ) uN )# R ( u #(1! ) uM ), Q Q R R n Q Q n R R 2
(4)
and P "1!P . The parties act to maximize P((R#r), the expected value of rents and an exogenous value of being in o$ce, R, J3A, B. In the unique political Nash equilibrium, the parties set the policy s" Q , R n r" !R, 2 R and thus
(5) (6)
1 n R t" # Q Q ! . (7) 2 n n R R R R The endogenous values of and are given by Eq. (2). Note that a social Q R planner would set s"1, r"0, t"n /n . Media's e!ects on spending, rents and Q R taxes will now be discussed. Equilibrium spending on program s, is increasing in the informed people who bene"t from this program, , relative to the share of informed taxpayers, . Q R This implies that redistributive spending is higher for programs that are intensely covered by media, in other words, programs that concern large groups, and groups to which it is cheap to deliver news. The model also predicts that groups with many media users, (q ), are more Q e!ective in attracting government spending. This prediction has been tested by StroK mberg (1999b) in a cross-sectional study of the allocation of New Deal funds across 3000 US counties. It "nds that counties with a large number of radio users were signi"cantly more successful in attracting these funds, controlling for a large set of variables. The e!ects are found to be signi"cantly larger in rural than in urban counties, perhaps because urban counties already had good access to daily newspapers. As a result, the expanding use of the radio signi"cantly increased the ability of rural America to attract government transfers.
D. Stro( mberg / European Economic Review 45 (2001) 652}663
657
Media's e!ect on rents, r, is straightforward: the more informed taxpayers, the lower are government rents. The reason is that the costs in terms of votes of proposing ine$cient policies are higher the more voters are informed. Empirically, we would expect to see more corruption and generally less e$cient government policies in countries or regions where only few voters have access to an independent media source. The e!ect on taxes is less straightforward. On the one hand, mass media provision of news is likely to decrease taxes since its cost structure makes it more pro"table to cover parties' positions on taxes, than on small government programs. In consequence, most people will be aware of the parties' positions on taxes, which will make tax increases very costly politically. On the other hand, the increased use of mass media by low-income voters after the introduction of radio and TV should make a larger number of these voters responsive to policies targeted to them, which may increase taxes. Empirically, the latter e!ect could be identi"ed by studying how the size of the government sector is related to the expanding use of radio and TV. To my knowledge, there exists no empirical study of the e!ects of mass media on the growth of the government sector.
4. Lobby groups Next, I follow Grossman and Helpman (1996), and allow the groups to organize in lobbies to in#uence electoral competition. Assume that only the small group bene"ting from the government program, s, can overcome the free-rider problem in lobbying (Olson, 1965) and organize. The lobby group o!ers the parties contribution schedules contingent on the platforms the parties adopt. The platforms are then announced and contributions paid accordingly. Finally, media inform some of the voters of the platforms, and elections take place as before. In the model of Grossman and Helpman, uninformed voters are a!ected by campaign rhetoric. In particular, if party A spends C and party B spends C on campaigning, then an uninformed voter casts his ballot for party A if h(C !C )5 #, (8) G where h is a positive constant determining the e!ect of campaign spending on votes. The probability of party A winning the election is found simply by replacing uM and uM by h(C !C ) in Eq. (4). It is assumed that only the lobby Q R group leaders (of measure zero) are directly informed about the platforms. This is not essential, the model is easily solved with any share exogenously informed members of the group s. Suppose that rents are zero. Party J maximizes P(R. Let (sH, tH) denote the best policy for party J, should it not accept the lobby group's proposal. To induce party J to choose another policy, the lobby must at least o!er
658
D. Stro( mberg / European Economic Review 45 (2001) 652}663
contributions so that P((s(, t(, C()R"P((sH, tH, 0)R. Using the expression for P(, this amounts to n (u (sH, tH)!u (s(, t())#n (u (sH, tH)!u (s(, t()) Q R R R R C(" Q Q Q , hn(1!)
(9)
where is the average share of informed voters in the population. Suppose that the lobby decides to give the two parties exactly what is needed to induce them to support the platforms (s , t ) and (s , t ), but nothing more. With these contributions, party A receives P "P (sH, tH, 0)" of the votes, no matter what policy is implemented. The lobby group's problem becomes that of choosing the two platforms to maximize its members' total expected utility, net of contributions, P n u (s , t )#P n u (s , t )!C !C . Q Q Q Q Given that P "P " and that contributions satisfy Eq. (9), the lobby group chooses to have party J propose the platform that maximizes n u (s(, t()#n u (s(, t() R R R n u (s(, t()# Q Q Q . Q Q hn(1!) This should be compared to the social planner solution which maximizes n u (s, t)#n u (s, t). Q Q R R Comparing the two expressions, it is clear that the policy bias is proportional to 1 (1!) Q# n h 2 R R where the endogenous values of and are given by Eq. (2). Q R Media will decrease the policy distortion favoring the organized group in two ways. First, the IRS feature of mass media will make it cover issues concerning dispersed large group more than issues that concern small interests. In one sense, mass media provide politicians with a megaphone that reaches exactly the large, dispersed taxpayer groups which may otherwise be disadvantaged since they cannot overcome the free-rider problem and organize in lobbies. Second, by reducing the share of uninformed voters (1!), the e!ectiveness of campaign rhetoric is reduced. Therefore, the expanding use of mass media may have had an impact, by lowering particular bene"ts and, for example, trade barriers. Empirically, we should expect to "nd lower trade-barriers in countries where a large share of the electorate has access to free media. A caveat is in place; since the in#uence of campaign spending on the electorate is not explicitly modelled, there may be other e!ects of mass media on the e!ectiveness of campaign rhetoric, now captured by the constant function h(C !C ).
D. Stro( mberg / European Economic Review 45 (2001) 652}663
659
5. Election cycles This section modi"es the model to explain how mass media provision of news a!ects political business cycles and how mass media may in#uence policy by a!ecting the weight voters put on di!erent issues. In this modi"ed model, an incumbent must allocate a "xed budget, I, on two uses n s#ny"I, Q where s is per capita spending in a speci"c program bene"ting n voters and y is Q per capita spending in a general program bene"ting all n voters. Rents are assumed to be zero. The structure of the model is similar to Rogo! (1990). However, politicians here have diwerent competence in di!erent policy areas. The competence in program j3s, y at time is , a moving average of shocks to competence in HO the current and immediately preceding period " # . HO HO HO\ The competence shocks are drawn from a standard normal distribution. HO The utility in these programs depends not only on the politicians' competence, but also on factors such as the local administration of the program. The local factors are captured by parameters and which are independently drawn QGO WGO from a standard normal distribution. The utility a voter i in group s derives from program s at time is ln(s)# # , QO GQO whereas the utility derived from the general bene"t program is y# # . WO GWO The horizon is in"nite and elections are held every other period. The timing in each period is the following. (i) Everyone observes the competence shocks of the previous period, . An incumbent politician chooses policy without knowing HO\ his own competence shocks, . (ii) The values of the competence and the local HO factor shocks are realized and each individual observes his own utility. Some voters are informed by the media about the utility realizations of other individuals, and can better separate the incumbents' competence from confounding local factors. (iii) If it is an election period, elections are held. If the incumbent is defeated, an opponent is appointed with competence shocks and drawn HO HO\ from a standard normal distribution. The incumbent's expected competence after the election in area j equals ( " ( . A voter in group s votes to re-elect if the incumbent's expected HO> HO competence in the area he cares about is su$ciently high to overcome the
660
D. Stro( mberg / European Economic Review 45 (2001) 652}663
exogenous preference for the opponent, , G ( # ( 5 , QO WO G while voters in group y re-elect if ( 5 . WO G Each parameter is again uniformly distributed on [!, ]. G Voters base their expectation of the incumbent's competence in program s, ( , on a signal from mass media, , containing m news stories, each covering QO Q Q one randomly drawn utility realization. This signal is normally distributed with mean ln(z)# and variance 1/m . After receiving signals of m and m utility QO Q Q W realizations, voters update their priors about the incumbent's competence in both policy areas: ( " ( !ln(s )! ), QO Q Q QO\ ), ( " ( !y ! WO\ WO W W where (s , y ) is the equilibrium policy and the precisions of the signals are m Q , " Q 1#m Q m W . " W 1#m W The incumbent has lexicographic preferences, he "rst and foremost cares about expected rents, P'R, and thus about winning the election. When policy has no e!ect on the election, he sets policy to maximize welfare. The probability that the incumbent wins the election is P'"F[n (ln(s)!ln(s ))#n (y!y )], Q Q W where F is a normal distribution with mean zero and variance np #np . In Q Q W the unique solution to the problem of maximizing expected rents, the incumbent sets s " Q, Q W and hence y"I!n Q , (10) Q W in election periods. In o!-election periods, he sets s "1 to maximize welfare. Q
D. Stro( mberg / European Economic Review 45 (2001) 652}663
661
As the media write more stories in an area, people get more precise information about the incumbent's competence in this area and are willing to move their priors more. This will cause voters in group s, who care about both programs, to increase the weight they put on this program in their election choices. This is similar in spirit to the Agenda Setting Theory of McCombs and Shaw (1972) which argues that media do not only transmit facts but also information about what issues are important to the voters. The mass media model is now slightly modi"ed. Instead of news space, q , the Q newspapers allocate editorial resources to cover m and m utility realizations. Q W The "rst copy costs in Eq. (1) are then c(m #m ) instead of c(q #q ). Q W Q W Assume that a signal containing m observations has value max(1, (m ) to H H voters in program j. Given these assumptions, the pro"t maximizing news mix is (disregarding integer problems)
m" Q
np Q Q, c
m " W
np . c
Media again cover more extensively issues concerning large groups and groups to whom it is cheap to deliver newspapers. During election periods, the incumbent will boost the program receiving most coverage in the press. In o!-election periods, the incumbent faces no re-election motives and thus sets the optimal policy s "1. Therefore, we will see an Q election cycle in the composition of spending. The program that will be boosted before elections may, in general, vary as news coverage varies. But, on average, we should more often see pre-election boosts in large programs, such as general bene"t programs and tax programs, and programs bene"ting groups using mass media a great deal. Note also that by observing which policies receive extensive mass media coverage, we can identify the programs politicians will be tempted to expand prior to elections. Naturally, mass media is not the only information source, and some policy areas are inherently easier to monitor than others. To explore the implications of this in the model, let s be a cash transfer program where local factors have no e!ect on the utility from the program, so that p "1. Then, more news provision Q on issue y will make the election cycles smaller because it will make p /p , Q W approach 1. In other word, as voters become better informed, it becomes more di$cult to hide the costs of pre-election expansions in less monitored programs and electoral policy cycles become smaller. In a panel study of 123 developed and developing countries over a 21-year period, Shi and Svensson (2000) "nd evidence of politically motivated policy cycles. Further, consistent with this theory, these cycles are smaller in countries where many voters have radios and where radio broadcasting is free from government intervention.
662
D. Stro( mberg / European Economic Review 45 (2001) 652}663
6. A research agenda Because of its unique role in transmitting information to mass audiences, mass media is likely to a!ect policies. Still, it is only very recently that media have been incorporated in formal political economy models, and the empirical e!ects of media on policy remain mainly unexplored. This paper discusses how information provision by mass media may a!ect a number of policy issues. A main theme is that mass media increases the political clout of large, dispersed, groups at the expense of small ones. This feature is likely to reduce the political in#uence of small, well organized specialinterest groups, as well as unorganized minority groups. The model also presents a number of testable hypotheses concerning mass media's e!ect on redistribution, taxes, corruption, trade-barriers, and political business cycles. So far, most of these hypotheses have not been tested empirically, although some work begins to emerge; see Besley and Burgess (2000) concerning mass media's e!ects on the government's responsiveness to droughts in India, Shi and Svensson (2000) concerning mass media's e!ects on political business cycles and StroK mberg (1999b) concerning mass media's e!ect on redistributive spending. Still many questions remain. Empirically, it would, for example, be interesting to know whether increased media coverage of a government program service leads to more spending, and whether mass media covers issues that large groups care about more intensely. Theoretically, the incentives created by the mutual dependence of politicians and journalists are interesting. Journalists are supposed to monitor politicians on behalf of the voters, yet, they depend on politicians for much of their information. Another topic deserving further theoretical investigation is the interaction between mass media and lobby groups. The reduced form in#uence function clearly leaves many questions unanswered, and the incentive e!ects of mass media revenues from political advertisements paid for by lobbies should be analyzed. To sum up: the policy implications of mass media are likely to be important, but have largely been neglected by economists. A large number of empirical and theoretical topics seem to merit future research. Acknowledgements Financial assistance from the Jan Wallander and Tom Hedelius Foundation is gratefully acknowledged. References Baron, D.P., 1994. Electoral competition with informed and uninformed voters. American Political Science Review 88, 33}47.
D. Stro( mberg / European Economic Review 45 (2001) 652}663
663
Besley, T., Burgess, R., 2000. Does media make government more responsive? Theory and evidence from Indian famine relief policy. Mimeo., London School of Economics. Delli Carpini, M.X., Keeter, S., 1996. What Americans Know about Politics and Why It Matters. Yale University Press, New Haven, CT. Downs, A., 1957. An Economic Theory of Democracy. Harper and Row, New York. Grossman, G.M., Helpman, E., 1996. Electoral competition and special interest politics. The Review of Economic Studies 63, 265}286. Iyengar, S., Kinder, D.R., 1991. News That Matters: Television and American Opinion. University of Chicago Press, Chicago, IL. Lazarsfeld, P.F., Berelson, B., Gaudet, H., 1948. The People's Choice: How the Voter Makes Up His Mind in a Presidential Campaign. Columbia University Press, New York. McCombs, M.E., Shaw, D.L., 1972. The agenda-setting function of mass media. Public Opinion Quarterly 36, 176}187. Olson, M., 1965. The Logic of Collective Action. Harvard University Press, Cambridge, MA. Rosse, J.N., Dertouzos, J.N., 1979. The Evolution of One Newspaper Cities. In: Federal Trade Commission, Proceedings of the Symposium on Media Concentration, Vol. 2. Government Printing O$ce, Washington, DC, pp. 429}471. Rogo!, K., 1990. Equilibrium political budget cycles. American Economic Review 80 (1), 21}36. Shi, M., Svensson, J., 2000. Conditional political business cycles: Theory and evidence. Mimeo., Stockholm University, Stockholm. Spence, M., Owen, B., 1977. Television programming, monopolistic competition and welfare. Quarterly Journal of Economics 91, 103}126. StroK mberg, D., 1999a. Mass-media competition, political competition, and public policy. In: The Politics of Public Spending, Ph. D. Dissertation, Princeton University, Princeton, NJ. StroK mberg, D., 1999b. Radio's impact on new deal spending. In: The Politics of Public Spending, Ph. D. Dissertation, Princeton University, Princeton, NJ.