RESEARCH PAPER NO. 1808 Competing For The public Through The News media David p baron June 2003 RESEARCH PAPER SERIES STANFORD GRADUATE SCHOOL OF BUSINESS
R ESEARCH P APER S ERIES RESEARCH PAPER NO. 1808 Competing For The Public Through The News Media David P. Baron June 2003
Research Paper No. 1808 COMPETING FOR THE PUBLIC THROUGH THE NEWS MEDIA David p, baron St anford University June 2003 Int erest groups seek to influence economic activity through public and private polit ics. Public politics takes place in the arenas of public inst it utions, whereas private polit ics takes place out side public inst itutions oft en in the arena of public sentiment. Private politics refers to action by interest groups direct ed at privat parties, as in the case of an activist group launching a campaign against a firm This paper present s a model of informational compet ition bet ween an activist and n indust ry, where each int erest group seeks to influence public sent iment and does so by advocat ing its position through the news media. Citizen consumers make both a private consumption decision and a collect ive choice on the regulation of duct t hat ext ernality associat ed with it. In the absence of the news organization the collect ive choice in not to regulate. The act ivist and the industry obt ain private, hard information on the seriousness of the externality and advocate favorable information and may conceal unfavorable informat ion. The news media can conduct investigative journalism to obt ain it s own information and based on that information and the informat ion it has received from its sources, provides news report to the public. Due to it s role in societ media has an incent ive to bias its report, and the direct ion of bias is toward regulat ion. Its bias serves to mitigate bot h the market failure by decreasing demand and a government failure by leading to regulation. The act ivist then has an incentive to conceal information unfavorable to it s int erest s, whereas the indust ry fully reveals its information
Research Paper No. 1808 COMPETING FOR THE PUBLIC THROUGH THE NEWS MEDIA David P. Baron Stanford University June 2003 Abstract Interest groups seek to influence economic activity through public and private politics. Public politics takes place in the arenas of public institutions, whereas private politics takes place outside public institutions often in the arena of public sentiment. Private politics refers to action by interest groups directed at private parties, as in the case of an activist group launching a campaign against a firm. This paper presents a model of informational competition between an activist and an industry, where each interest group seeks to influence public sentiment and does so by advocating its position through the news media. Citizen consumers make both a private consumption decision and a collective choice on the regulation of a product that has an externality associated with it. In the absence of the news organization the collective choice in not to regulate. The activist and the industry obtain private, hard information on the seriousness of the externality and advocate favorable information and may conceal unfavorable information. The news media can conduct investigative journalism to obtain its own information and based on that information and the information it has received from its sources, provides a news report to the public. Due to its role in society, the media has an incentive to bias its report, and the direction of bias is toward regulation. Its bias serves to mitigate both the market failure by decreasing demand and a government failure by leading to regulation. The activist then has an incentive to conceal information unfavorable to its interests, whereas the industry fully reveals its information
Competing for the Public Through the News Media David p B St anford universit Introduction est groups seek to influence economic activity through public and privat e polit ics Public politics takes place in the arenas of public instit ut ions, whereas privat e polit ics takes place out side public inst it ut ions oft en in the arena of public sent iment. Public polit ics fo- cuses on government policy, such as regulation and tax and expendit ure poli politics refers to action by interest groups direct ed at private parties, as in the case of an activist group launching a campaign against a firm. This can be independent of gov ernment but generally draws st rengt h from the public, as in the case of a boycott. This paper present s a model in which int erest groups compete for public sent iment through the news media to influence the public politics of regulat ion and private politics through the consumpt ion decisions of citizens. In addition, the paper provides an explanat ion of media bias in terms of the role of the news media in society n privat e politics act ivist st rat egies oft en focus on pressuring firms through the mem- bers of the public bot h in their roles as consumers and their roles as const it uents of publ officeholders. In response, opposing int erest groups may count eract those st rat egies through both private and public polit ical st rat egies. For example, the st rategic compet it ion bet ween activist s and firms frequent ly focuses on public sentiment about the activities of the firm The inst rument of t hat compet it ion is advocacy -communicat ing informat ion to the public favorable to the int erest groups objectives while remaining silent about information un- favorable to those objectives. This communication can be direct to the public, but it can be more efficient to communicate through the news media, which can be a low-cost means Friedman(1999, Ch. 8)found that 2 groups direct their communication strat egies to it, the news media has a role in private politics(Baron(2002)(2003b). The news media can be viewed as a private inst it ution in This research was support ed by NSF Grant No. SES-0111729. I would like to thank Bharat Anand, Larry Bartels, and seminar participants at Columbia University, Harvard University, and Princet on University for their comments
Competing for the Public Through the News Media1 David P. Baron Stanford University I. Introduction Interest groups seek to influence economic activity through public and private politics. Public politics takes place in the arenas of public institutions, whereas private politics takes place outside public institutions often in the arena of public sentiment. Public politics focuses on government policy, such as regulation and tax and expenditure policy. Private politics refers to action by interest groups directed at private parties, as in the case of an activist group launching a campaign against a firm. This can be independent of government but generally draws strength from the public, as in the case of a boycott. This paper presents a model in which interest groups compete for public sentiment through the news media to influence the public politics of regulation and private politics through the consumption decisions of citizens. In addition, the paper provides an explanation of media bias in terms of the role of the news media in society. In private politics activist strategies often focus on pressuring firms through the members of the public both in their roles as consumers and their roles as constituents of public officeholders. In response, opposing interest groups may counteract those strategies through both private and public political strategies. For example, the strategic competition between activists and firms frequently focuses on public sentiment about the activities of the firm. The instrument of that competition is advocacy—communicating information to the public favorable to the interest group’s objectives while remaining silent about information unfavorable to those objectives. This communication can be direct to the public, but it can be more efficient to communicate through the news media, which can be a low-cost means of communicating with the public. In his study of 24 ecological boycotts led by activists Friedman (1999, Ch. 8) found that 22 were directed at the news media. Since interest groups direct their communication strategies to it, the news media has a role in private politics (Baron (2002)(2003b)). The news media can be viewed as a private institution in 1 This research was supported by NSF Grant No. SES-0111729. I would like to thank Bharat Anand, Larry Bartels, and seminar participants at Columbia University, Harvard University, and Princeton University for their comments. 1
whose arena int erest groups compete to influence public and private politics. In the 1950s nd 1960s t his role led comment ators to refer to the news media as the fourt h branch of government or the"fourth est ate The news media provides informat ion to the members of the public for their private and collective decisions, and in doing so it has considera ble discret ion in det ermi information is report ed. Moreover, it may have its own objectives based on self-int erest as well as on principles of journalism as embodied in the profession. The media thus can have a st rat egic role in influencing public sent iment and hence the out comes of private and public polit ics. The medias report ing also can affect the st rat egies of its sources, and it may conduct investigative journalism to uncover the concealment of information The st rat egic compet it ion considered here is bet ween int erest groups, an activist and indust ry, and pert ains to an externality associat ed wit h the consumption of a product The compet ition takes the form of communicat ing information about the seriousness of the externality to the public through the news media. The news media exercises discret ion on what it reports to the public, and based on that report, the members of the public individu ally decide whet her to consume the product and collectively decide whether to regulate th externality. The media's report ing strat egy thus can affect bot h private and public politics, and in equilibrium the media biases its news report to mitigate bot h a government failure and a market failure. Bias in this case can serve the interests of the public, even though individuals are fully rational and skept ical of the news report. In addition to providing information,the news media may be able to make normative argument s regarding the ex- ternality wit h the objective of changing the public's preferences. The change in behavior resulting from such moral suasion can be a subst itute for regulation II. An Example of an Issue and the Compet ition The issue of corporate average fuel economy(CAFE) standards for light vehicles pro- vides an example of a compet ition bet ween act iv s and firms wit h the news media provid ing information to the public for their private and collective decisions. The CaFE st andard for passenger cars has remained at 27.5 mpg since 1985, and the st andard for light trucks which includes SUVs, has remained at 20.7 mpg since a small increase in 1996. Environ- ment al activists and their allies in Congress have sought to increase the st andard. TH
whose arena interest groups compete to influence public and private politics. In the 1950s and 1960s this role led commentators to refer to the news media as the fourth branch of government or the “fourth estate.” The news media provides information to the members of the public for their private and collective decisions, and in doing so it has considerable discretion in determining what information is reported. Moreover, it may have its own objectives based on self-interest as well as on principles of journalism as embodied in the profession. The media thus can have a strategic role in influencing public sentiment and hence the outcomes of private and public politics. The media’s reporting also can affect the strategies of its sources, and it may conduct investigative journalism to uncover the concealment of information. The strategic competition considered here is between interest groups, an activist and an industry, and pertains to an externality associated with the consumption of a product. The competition takes the form of communicating information about the seriousness of the externality to the public through the news media. The news media exercises discretion on what it reports to the public, and based on that report, the members of the public individually decide whether to consume the product and collectively decide whether to regulate the externality. The media’s reporting strategy thus can affect both private and public politics, and in equilibrium the media biases its news report to mitigate both a government failure and a market failure. Bias in this case can serve the interests of the public, even though individuals are fully rational and skeptical of the news report. In addition to providing information, the news media may be able to make normative arguments regarding the externality with the objective of changing the public’s preferences. The change in behavior resulting from such moral suasion can be a substitute for regulation. II. An Example of an Issue and the Competition The issue of corporate average fuel economy (CAFE) standards for light vehicles provides an example of a competition between activists and firms with the news media providing information to the public for their private and collective decisions. The CAFE standard for passenger cars has remained at 27.5 mpg since 1985, and the standard for light trucks, which includes SUVs, has remained at 20.7 mpg since a small increase in 1996. Environmental activists and their allies in Congress have sought to increase the standard. The 2
Sierra Club has worked for a standard of 40 mpg for aut mobiles to be achieved over 1 ears, Since SUVs and light trucks represent nearly 50 percent of the market, Senators John Kerry and John McCain sought to replace the two standards with a single standard of 35 mpg to be achieved over 12 years. A principal component of the strategy of the environmental groups has been to em phasize the seriousness of the global climate change issue and recently to add the national security issue of the reliance on imported oil. In public politics environmentalists sought to increase constituent pressure on represent atives. The automakers countered by empha- sizing the revealed preferences of consumers for larger and more powerful vehicles and the dditional inj uries and fatalities that would result from downsizing vehicles to meet sharply higher fuel econoy standards, The stat us quo was advantaged in public politics, and the legislative efforts failed in 2002. After failing to achieve higher caFe standards in Congress, the Sierra Club turned to private politics It sought to mobilize the public against the aut makers refusal to improve he fuel economy of their vehicles. The Sierra Club began a three-year campaign to put public pressure directly on the big-three aut makers. As Carl Pope, executive director of the Sierra Club, explained "were going now to the customers. The Sierra Club hired Haddow Communications to conduct an advertising campaign challenging the aut omobile companies2 The radio ads specifically called on CEO Bill Ford, "Now more than ever America needs cars that get better gas mileage. That's why were asking Bill Ford, head of the Ford Motor Company, to do his part and to produce more fuel efficient, SUVs and pickup trucks” Separately, another group aired telev ision commercials arguing that buying an Suv supported terrorism and threatened national security by increasing the dependence on imported oil. News coverage of the activist campaigns increased the attention given to the issues As New York Times observed " the message is attracting attention through 2 Television spots feat ured former Nebraska senator Bob Kerrey and retired N admiral J ack Shanahan. In one ad Kerrey said, Its time for us to tell the auto industry hat we want to break the grip of oil- producing coumtries and reduce our oil use. " In another Kerrey stated, " We ask our young men and women to sacrifice their safety and perhaps their lives to fight the war against terrorism We all know that our dependency on imported oil is part of the problem and we know that increasing the fuel economy of the cars we drive is part of the solution
Sierra Club has worked for a standard of 40 mpg for automobiles to be achieved over 10 years. Since SUVs and light trucks represent nearly 50 percent of the market, Senators John Kerry and John McCain sought to replace the two standards with a single standard of 35 mpg to be achieved over 12 years. A principal component of the strategy of the environmental groups has been to emphasize the seriousness of the global climate change issue and recently to add the national security issue of the reliance on imported oil. In public politics environmentalists sought to increase constituent pressure on representatives. The automakers countered by emphasizing the revealed preferences of consumers for larger and more powerful vehicles and the additional injuries and fatalities that would result from downsizing vehicles to meet sharply higher fuel economy standards. The status quo was advantaged in public politics, and the legislative efforts failed in 2002. After failing to achieve higher CAFE standards in Congress, the Sierra Club turned to private politics. It sought to mobilize the public against the automakers’ refusal to improve the fuel economy of their vehicles. The Sierra Club began a three-year campaign to put public pressure directly on the big-three automakers. As Carl Pope, executive director of the Sierra Club, explained “we’re going now to the customers.” The Sierra Club hired Haddow Communications to conduct an advertising campaign challenging the automobile companies.2 The radio ads specifically called on CEO Bill Ford, “Now more than ever, America needs cars that get better gas mileage. That’s why we’re asking Bill Ford, head of the Ford Motor Company, to do his part and to produce more fuel efficient, SUV’s and pickup trucks.” Separately, another group aired television commercials arguing that buying an SUV supported terrorism and threatened national security by increasing the dependence on imported oil. News coverage of the activist campaigns increased the attention given to the issues. As The New York Times observed, “the message is attracting attention through 2 Television spots featured former Nebraska senator Bob Kerrey and retired Navy vice admiral Jack Shanahan. In one ad Kerrey said, “Its time for us to tell the auto industry that we want to break the grip of oil-producing countries and reduce our oil use.” In another Kerrey stated, “We ask our young men and women to sacrifice their safety and perhaps their lives to fight the war against terrorism. We all know that our dependency on imported oil is part of the problem and we know that increasing the fuel economy of the cars we drive is part of the solution.” 3