The name is absent



Thus the lobby will only support a party that offers its members a higher level
of economic welfare than the other party. Moreover, Appendix 1 shows that the
probability that party
A will win the election is

pA = + + αipi (UA - uB) + (1 - αi) po (UA - UB) ,       (2.20)

2

0 αi < 1,pi = ψ + αiψ2h2,    po = ψ.

In other words, the greater an insider’s economic welfare implied by the policy
of party
A, the greater is the likelihood that he will vote for that party, given
the economic policy package offered by party
B . In a similar way, party A can
increase its voter support from outsiders by choosing a fiscal policy platform that
increases the (expected) economic welfare of members of that goup of voters.

Maximisation of pA, given UiB and UoB , gives party A’s best response to the
policy chosen by party
B . The latter party faces the symmetric problem of maxim-
ising
1 - pA , yielding similar first-order conditions and an identical best-response
function. In Nash equilibrium the two parties therefore end up choosing the same
fiscal policy platforms implying
UiA - UiB =0, so according to (2.19) the public
sector lobby will not want to offer any campaign contributions in political equilib-
rium.10 Thus the political influence of the lobby derives from the
potential rather
than from the
actual political support that it offers.

The economic welfare of an insider is simply equal to the utility of a public
sector worker
(Ug), that is, Ui = Ug = u (W + rk) + g (G) (since both parties
choose the same policy in equilibrium, we no longer attach party superscripts to
any variables). The expected economic welfare of an outsider,
Uo , depends on
the probability that he will be able to get one of the high-paying public sector
jobs that have not already been reserved for the lobby insiders. For simplicity we
assume that all outsiders face the same probability of getting one of the marginal
public sector jobs, as if these jobs were allocated by a lottery. The total number
of public sector jobs is
α of which αi are reserved for the lobby members.
Hence
(α - αi ) is the number of public sector jobs offered to outsiders, and 1 - αi
is the number of outsiders competing for those jobs. Thus, at the time of voting,

10 This is why our model specification in section 2.3 did not explicitly allow for lobby activities
as one possible use of the economy’s resources.

14



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