THE ECONOMICS OF FIRM SIZE, MARKET STRUCTURE AND THE MARKET FOR POLITICAL INFLUENCE

This dissertation investigates the question of whether political influence in the business sector is distributed disproportionately among firms in a manner which favors large economic units. The factors which are likely to be sources of variation in the market for political influence faced by economic units of different sizes are isolated and studied.;An analysis of the demand for political influence is then presented in which government is treated as an intermediate input in the firm's production function. It is argued that forms of influence may not only serve to alter a firm's cost and demand conditions, but that the economic unit may also enjoy a reduction in the bounded rationality problems which it faces. These internal transactions costs are not generally reduced to a significant degree when influence is produced for the large firm because of the non-durable nature of legislation created for conspicuous corporate units. Thus, the value of the marginal product of political influence is inversely related to firm size.;The analysis is then subjected to empirical testing. The results suggest that political influence and regulated firm size are positive and disproportionately related. Across unregulated firms a proportional relationship appears to exist.;Finally, the policy implication of the results are explored. The conclusions suggest that policy implemented to reduce the extent of special interest legislation for business by limiting the growth of firms may not only be unsuccessful, but will likely lead to serious market distortions.;Relying upon pre-existing research by scholars in the area of public choice, a production cost function for legislative political influence is developed. It is demonstrated that supply conditions are likely to vary between corporate units of different sizes favoring small firms.