The Incidence of Multi-Client Lobbying: A Test of Three Explanations

When leaders of interest groups outsource their lobbying efforts to contractors, they lose agency over how their groups are represented before policymakers. This agency loss can lead to principal-agent problems if the contractor does not have the same interests of his client. Examples include forms of shirking. If the contractor represents multiple clients, then there is potential for common-agency problems. Examples include when contractors charge multiple clients redundantly for the same lobbying efforts. Both principal-agent and common-agency problems can entail great costs to groups, especially when a group unknowingly hires an adverse agent or someone who lobbies against its interests. Since most lobbying occurs behind closed doors, and because contingency fees are illegal in most jurisdictions, traditional solutions to these problems (i.e., monitoring and incentive adjustments) are not feasible for reining in adverse agents. Given these risks, I test three sets of explanations for the outsourcing of lobbying. The first set of explanations concerns lobby laws. Enhanced reporting requirements might increase multi-client lobbying because of economies of scale and enhanced ability to monitor lobbyist actions. Reporting requirements can present inconveniences to group leaders, encouraging them to hire legal professionals who already report on behalf of other clients. If lobbyists are required to report their whereabouts and the content of their meetings with officials, then clients can more easily monitor their actions. This reduces the potential for shirking. The allowance for contingency fees or bonuses might also encourage clients to hire more contractors by further allowing them to rein in shirking. At the same time, however, limits on campaign donations by lobbyists might harm the political access that some multi-client contractors rely on and market to clients. There are two other explanations worth considering. Clients might face a tradeoff between enhanced political access (via contractors) and faithful representation (via in-house lobbyists). Contractors with access might include revolving-door lobbyists who have legislative experience. Their presence in a political system might increase multi-client lobbying. Clients also face internal or organizational-level constraints. From Thompson (1962) and Williamson (1985), organizations for whom lobbying is a core technical function should be less likely to hire contractors because outsourcing exposes their core functions to potential shirking. Groups pursuing public goods such as environmental protections and civil liberties should be less likely to outsource because lobbying is their core function. Moreover, these groups must maintain a constant presence since public goods are under constant threat of being under-provided (Olson 1965). As a result, it might be more economical for these groups to prefer full-time, in-house advocates. To determine which of these explanations most explains the incidence of multi-client lobbying, I code roughly 80,000 registered interest groups from all 50 U.S. states for years 1989 and 2011. Groups are clustered into regulatory regimes (states) with different numbers of revolving-door lobbyists, but coded individually according to their lobbyist hiring decisions, type of goods pursued, and duration of lobbying effort. I use logit regression to predict individual group decisions based on these covariates.