Agency Problems in Political Campaigns: Media Buying and Consulting
by Gregory J. Martin, Emory University and Zachary Peskowitz, Emory University
Political consultants play a major role in U.S. elections. Consultants make important choices on how to allocate candidates’ campaign funds across activities like direct mail, get-out-the vote operations, and television advertisements. These choices also have implications for the revenues that consultants earn. We use a new dataset of consulting ﬁrms’ revenues and costs to study the markups that ﬁrms charge political candidates. We ﬁnd that markups are higher for inexperienced candidates relative to experienced candidates, and PACs relative to candidates. We also ﬁnd signiﬁcant diﬀerences across the major parties: ﬁrms working for Republicans charge higher prices, exert less eﬀort, and induce less responsiveness in their clients’ advertising expenditures to electoral circumstances than do their Democratic counterparts. We connect this observation to the distribution of ideology among individual consulting ﬁrm employees, arguing that these higher rents incentivize consultants to work against their intrinsic ideological motivations. The internal organization of ﬁrms reﬂects an attempt to mitigate this conﬂict of interest; ﬁrms are composed of ideologically homogeneous employees, and are more likely to work for ideologically proximate clients.