Patterns of political pressure : corporate PACs and profits

Abstract

The rapid emergence of corporate political action committees (PACs) in the electoral process has raised many questions about their behavior. In particular, researches have attempted to explain the determinants of 'levels' of PAC campaign contributions. The purpose of this paper is to explain the determinants of 'changes' in PAC campaign contributions. It is believed that PAC contributions and profits are highly correlated. The paper considers two hypotheses with testable implications, the endowment effect theory [Thaler 1980] and the Peltzman theory [Peltzman 1976], to explain the effects of changes in producer profits on changes in PAC campaign contributions. An econometric model is constructed to test the implications of the hypotheses. The results of the econometric model reject the endowment effect theory, but fail to reject the Peltzman theory given certain conditions. Assuming an inelastic and static demand curve for regulation, the econometric results indicate that falling producer profits causes the "price" of favorable government regulations to fall. Hence, losses in producer profits causes PAC camapaign contributions to decrease.