Abstract

This paper presents a model that analyzes political competition and campaign contributions in a probabilistic voting model. We depart from the usual ‘‘truth telling’’ assumption found in the literature, allowing running candidates to signal self-qualities and opponent-flaws, no matter if what they say is true or not. Three important results arise form the political competition game. First, money matters for electoral outcomes. Second, candidates have incentives to provide too much political favors to contributors. Finally, big corporations are the ones that contribute to candidates the most. All these results support the idea that imposing limits to campaign contributions, campaign spending, and matching public funds can be socially desirable.