Supersedes Working Paper 18-01 – Greed as a Source of Polarization

Is the rise in campaign contributions the cause of the growing political polarization? In this paper, we show that, in standard models of campaign contributions and electoral competition, a free-rider problem among potential contributors leads naturally to polarization of campaign contributors but without any polarization in candidates’ policy positions. However, we go on to show that a modest departure from standard assumptions — allowing candidates to directly value campaign contributions (because of “ego rents” or because lax auditing allows them to misappropriate some of these funds) — delivers the ability of campaign contributions to cause policy divergence. Consistent with the model, we document that a candidate’s share of contributions in U.S. House of Representatives races is higher when her opponent’s agenda is more extreme.

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