Friends in High Places

Abstract (via Cohen & Malloy)

In this paper we demonstrate that personal connections amongst politicians, and between politicians and firms, have a significant impact on the voting behavior of U.S. politicians. We exploit a unique database linking politicians to other politicians, and linking politicians to firms, and find both channels to be influential. Networks based on alumni connections between politicians, as well as common seat locations on the chamber floor, are consistent predictors of voting behavior. For the former, we estimate sharp measures that control for common characteristics of the network, as well as heterogeneous impacts of a common network characteristic across votes. For common seat locations, we identify a set of plausibly exogenously assigned seats (e.g., Freshman Senators), and find a strong impact of seat location networks on voting. Further, we show that connections between firms and politicians influence Congressional votes on bills that affect these firms. These network effects are stronger for more tightly linked networks, and at times when votes are most valuable.

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27. October 2010 by Miguel Barbosa
Categories: Curated Readings, Finance & Investing | Leave a comment

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