Motivating Lobbyists: Evidence from the U.s. Foreign Agents Registration Act

Abstract: Our paper investigates how firms motivate their agents in the absence of explicit incentives, using the US lobbying industry as a case in point. We develop a simple principal-agent model in which a lobbyist and a client interact repeatedly. Consistent with US law, we assume the client cannot offer a formal incentive contract that explicitly links the lobbyist’s pay to measures of its success. However, the client observes the advocacy effort exerted by the lobbyist and hence can motivate him informally via implicit incentives. We show that the stronger the lobbyist’s political connections relevant to alternative clients, the lower the informal incentive the focal client can credibly commit to pay and hence the lobbyist’s effort. We test the theoretical predictions integrating data from the Foreign Agent Registration Act from 1999 to 2017 with data on lobbyists’ political connections in congressional committees.