Agency Problems in Political Campaigns: Media Buying and Consulting

Agency Problems in Political Campaigns: Media Buying and Consulting

By
Gregory J. Martin, Zachary Peskowitz
American Political Science Review. May
2018, Vol. 112, Issue 2, Pages 231-248

Advertising expenditures in congressional campaigns are made not directly by campaigns themselves but indirectly though intermediary firms. Using a new dataset of revenues and costs of these firms, we study the markups that these firms charge candidates. We find that markups are higher for inexperienced candidates relative to experienced candidates, and PACs relative to candidates. We also find significant differences across the major parties: firms working for Republicans charge higher prices, exert less effort, and induce less responsiveness in their clients’ advertising expenditures to electoral circumstances than do their Democratic counterparts. We connect this observation to the distribution of ideology among individual consulting firm employees, arguing that these higher rents incentivize consultants to work against their intrinsic ideological motivations. The internal organization of firms reflects an attempt to mitigate this conflict of interest; firms are composed of ideologically homogeneous employees, and are more likely to work for ideologically proximate clients.