Why you should be skeptical of candidates’ self-imposed bans on special interest contributions


For anyone paying attention to the hypocrisy surrounding the so-called “people’s pledge” in the Massachusetts Senate race, a new paper offers some good evidence of why you should be skeptical of these kinds of pledges in general.

The paper, “Campaign Contributions from Corporate Executives in Lieu of Political Action Committees” is by Brian Keller Richter and Timothy Werner, both assistant professors of Business, Government, and Society at the University of Texas at Austin, finds that when candidates pledge to stop accepting money from political action committees (PACs), corporate CEOs step up their personal contributions.

More specifically, Richter and Werner show that CEOs at companies whose PACs formerly gave to the candidate increase their personal giving to the candidate on average by $65 following the self-imposed PAC ban.

Though it might not seem like that much money at first, it’s likely that the CEO is not the only executive at the company picking up the slack. Richter and Werner estimate that the $65 is about 12% of what the average company’s PAC was contributing. So all it would take is seven other executives to pitch in, and it’s just as good as the PAC contribution – but with the ability of the candidate to say that he or she not longer gets money from PACs.

Richter and Warner see this as “evidence for the hydraulic theory of campaign finance” – that is, that people who are committed to influencing politics will always find a way to do so.

Their analysis is based campaign contributions from S&P 500 CEOs from 1991 to 2008.

This data on S&P 500 CEO political giving also powers another paper by Richter and two other colleagues, Adam R. Fremeth (University of Western Ontario) and Brandon Schaufele (University of Ottawa) have another paper, “Campaign Contributions over CEO’s Careers” (to be published soon in American Economic Journal: Applied Economics) that finds that when individuals become CEO, their political contributions increase by, on average, about $4,000.

They find average contribution per cycle for active S&P 500 CEOs is $15,115; for former S&P 500 CEOs it’s $13,116.

The authors offer a few possible reasons for the increase. Maybe, they argue, CEOs need to “open doors” more. Maybe they are expected to give more, both by politicians and by corporate government relations people. Maybe they want to set examples within the company. (They have a few other hypotheses as well in the paper)

Taken together, these two papers are both important contributions because they help us to better understand CEOs’ strategic political motivations. Both papers are worth reading in full.

In an era in which rich individuals are easily able to give unlimited sums and the costs of campaigns continue to rise, executives’ individual contributions to candidates are likely to play an ever more important role. So understanding how and why they contribute is pretty important stuff.