Abstract

The effect of a contribution cap is analyzed in a political lobbying game where the politician has a preference for the policy position of one of the lobbyists. In contrast to the previous literature where the politician has no preference over policy alternatives, we find that a more restrictive binding cap always reduces expected aggregate contributions. However, the politician might support a barely binding cap over no cap on contributions. The cap always favors the lobbyist whose policy position is preferred irrespective of the identity of the high-valuation lobbyist. The introduction of politician policy preferences permits an analysis of welfare tradeoffs of contribution caps. Even a barely binding cap can have significant welfare consequences.