Lobby Formation Sample Clauses

Lobby Formation. In the market for public policy, latent preferences are equivalent to no preferences at all. Xxxxxx Xxxxx'x The Logic of Collective Action (1971) is the classic reference on the factors that allow societal groups to overcome the barriers to collective action and form effective lobbies. Xxxxx notes that the key barrier to collective action is the incentive for group members to “free ride” off the actions of others by sharing in the spoils of a public good without contributing to the costs of securing it. If a significant portion of an interest group chooses to free ride rather than bear the costs of organizing, the costs to the remaining members may be too high to justify the effort or the expense. The key to overcoming barriers to collective action are circumstances (whether they exist naturally or are brought into being by deliberate action) that lower the costs or raise the benefits of organizing. Small, pre-established and/or homogeneous communities generally face lower costs to organizing. High salience issues and/or the availability of selective benefits for organized members raise the benefits of collective action. Of all of the groups in model, managers and majority shareholders should have the easiest time organizing. They have an obvious and profound interest in preserving their autonomy within the firm. They are a relatively small group, and typically have pre- existing lobbying capabilities built up around issues beyond corporate governance, such as taxation, labor and environmental regulations, etc. Moreover, the actual costs of lobbying may be lower for insiders than for other groups because, as Bebchuk and Xxxxxx (forthcoming) note, insiders are in a uniquely advantageous position of being able to use other people's (outside shareholders') money to lobby in favor of a policy environment in which they will be able to collect all of the spoils. In practice, groups representing management have been very active and very successful in lobbying on behalf of their own interests in low levels of investor protection (ex. Gourevitch and Xxxxx 2005; Xxxxxxxxx forthcoming; Xxx 1993, Xxxxxx 1987). Can minority shareholders organize themselves into a successful lobby group? Individual investors are too diffuse and their stake in corporate equity too small to overcome barriers to collective action (ex. Xxxxx and Means 1932; Black 1991; Bebchuk and Xxxxxx forthcoming; Xxxxxxxxx forthcoming). In practice, individual investors' are barely able to discipline ma...