Indirect Lobbying:The Italian Case between Advertising and Politics

THE STUDY BY ELIANA LA FERRARA THAT WON THE AEJ BEST PAPER AWARD FOR 2017 ANALYZES THE INCREASE OF MEDIASET ADVERTISING REVENUES AT THE EXPENSE OF THE RAI CHANNELS BETWEEN 1993 AND 2009 AND ESTIMATES AT TWO BILLION EURO THE RELATED POLITICAL BENEFITS FOR COMPANIES

Mediaset increased advertising profits by over 1 billion euros over the nine years of Silvio Berlusconi government. Profits went down while he was the leader of the main opposition party and went up again when he returned to government. This is just one of the results featured in a paper by Eliana La Ferrara, full professor at the Department of Economics and holder of the Romeo and Enrica Invernizzi Foundation in Development Economics. The research was recently awarded with the AEJ Best Paper Prize 2017 : Applied Economics. The prize highlights the best works published each year on the American Economic Association journals. After Donald J. Trump won the 2016 presidential election, the paper was featured in the Financial Times, New York Times and Slate as a study that “sheds light on politics and profits”.
 
Literature has so far studied the incentives for a politician to represent the interest of special groups and the conflict of interest that arises for politicians with business holdings. In Market-based Lobbying: Evidence from Advertising Spending in Italy, Stefano Della Vigna, Ruben Durante, Brian Knight and La Ferrara have identified and investigated an indirect form of lobbying that occurs when third parties shift their business towards firms controlled by a politician, in order to ingratiate him.
 
This is called indirect lobbying: the politician benefits from the increased business, the firms expect favorable regulation in return. “Our paper is the first attempt to formally model and empirically investigate this novel channel”, La Ferrara says. They have examined the case of Italy in the 1990s and the 2000s, when Silvio Berlusconi was the owner of the mass media company Mediaset and served as prime minister. “We have analyzed data on advertising spending over the period 1993-2009, when Berlusconi was is in and out of power. The advertising spending on Mediaset was higher when Berlusconi was in power. In the meantime, spending on the public broadcasting corporation RAI went down”.
 
The firms were classified according to the degree of control which their economic sector is subjected to: more regulated, such as pharmaceutical and telecommunications, and less regulated. Having the incentive to receive a political benefit, the former spent more on Mediaset when Berlusconi was in power.
 
The numbers are impressive. The authors estimate an increase of profits for Mediaset of over 1 billion euros over the nine years of Berlusconi government, accounting for 20 percent of the market capitalization of Mediaset in 1997. “We have also estimated the expected returns from favorable regulation for the regulated firms to be 2 billion euros over nine years”. The indirect lobbying channel plays a major role. This is an additional rationale to address conflicts of interest.
 

by Claudio Todesco