Signaling with Reform: How the Threat of Corruption Prevents Informed Policy-making

Lobbying is a potential source of corruption but is also a valuable source of information for policy-makers. We analyze a game-theoretic model that shows how the threat of corruption affects the incentives of noncorrupt politicians to enlist the help of lobbyists to make more informed decisions. Politicians face a dilemma because voters cannot always tell whether a politician allows access to lobbyists to solicit corruption or to seek information. Thus, a noncorrupt politician may deny access to lobbyists to signal that she is noncorrupt even though doing so impedes her ability to make good policy. This signaling may decrease the welfare of the voters depending on the value of the lost policy information relative to the value of screening out corrupt politicians.