Konishi, Hideo, and Chen-Yu Pan. “Silent promotion of agendas: Campaign contributions and ideological polarization”. Boston College Working Papers in Economics 944, 2018. http://hdl.handle.net/2345/bc-ir:107703.
Until recently, both Republican and Democratic administrations have been promoting free trade and market deregulation for decades without intensive policy debates. We set up a two-party electoral competition model in a two-dimensional policy space with campaign contributions by an interest group that promotes a certain agenda. Assuming that voters are impressionable to campaign spending for/against candidates, we analyze incentive compatible contracts between the interest group and the candidates on agenda policy positions and campaign contributions. The interest group asks the candidates to commit to its agenda in exchange for campaign contributions, letting them compete over the other (ideological) dimension only. It is shown that, as the agenda is pushed further by the interest group, ideological policy polarization and campaign contributions surge.