The Effectiveness of Caps on Political Lobbying

In this paper, we analyze a lobby game, modelled as an all-pay auction in which interest groups submit bids in order to obtain a political prize.The bids are restricted to be below a cap imposed by the government.For both an incomplete and a complete information setting we show the following results. While ex post a lower cap may lead to higher lobbying expenditures, ex ante a lower cap always implies lower expected total lobbying expenditures.The incompletely informed government maximizes social welfare by implementing a cap equal to zero.