| Abstract: | This paper presents a theory of political competition with campaign contributions and informative political advertising. Policy‐motivated parties compete by selecting candidates and interest groups provide contributions to enhance the electoral prospects of like‐minded candidates. Contributions are used to finance advertising campaigns that provide voters with information about candidates' ideologies. Voters update their beliefs rationally given the information they have received. The paper uses the theory to analyze the welfare economics of contribution limits. Such limits are shown to redistribute welfare from ordinary citizens to members of interest groups. (JEL: D72, H40) |
