The welfare effects of political money in regulation

Corporations devote costly efforts to gain access to politicians before elections. The consequent connection between private interests and candidates takes many forms and commonly result in a welfare loss. I then investigate how different types of private interests' pre-electoral contributions affect the choice of a regulatory policy and its welfare consequences. I develop a model where, before candidates announce their policy platforms, a privately informed firm that operates in a regulated market either contributes to candidates' campaigns with a fixed amount or promises a fraction of future profits. I study how these two contribution schemes affect the welfare of voters (and candidates) and the transference of the firm's private information. I also discuss how the welfare effects of the campaign-finance laws depend crucially on the possibility of identifying these two different ways of connection between candidates and private interests.