news coverage. "3 The Sierra Club obt ained leverage through media coverage ofthe campaign and through variety of actions int ended to emphasize recent decreases in fleet fuel economy and the seriousness of the global climate change issue. The news media regularly report ed on fuel economy data and regulation, and the act iv ists and the indust ry provided information influence those reports. For example, environmental activist s railed against the int rod tion of the Hummer H2, which was sufficient ly heavy that it was not subject to any fuel economy st andards. Earlier, the Sierra Club had campaigned against the Ford Excursion which it dubbed the Ford valdez. Ford decided to drop the excursion In 2003 the Bush administration increased the light truck standard to 22.2 mpg by nodel year 2007. The administrat ion argued t hat the increase would save 2. 5 billion gallons of gasoline, but critics claimed that the automobile industry was already planning increases greater than in the new st andard. Daniel Becker of the Sierra Club called the action by the Bush administ ration"irresponsible. The big three aut makers crit icized the new st andard as costing more than it was wort h and cost ing the nation badly needed jobs III Overview A Literature on the News media The impact of the news media on public polit ics is broadly observable(Graber(2000)) For example, following the oil crises in the 1970s Erfle and McMillan(1990)found that media coverage affect ed the price of home heat ing oil relative to the price of bunker oil sold to elect ric utilities. They concluded that oil companies restrained their price increases to rest all a public reaction and possible new regulation. Stromberg (2001)has shown that as the u.s. radio audience increased in the 1930s more relief funds were allocated to count ies Besley and Burgess(2002), Besley and Prat (2001), and Besley, Burgess, and Pratt (2002)st udied models of polit ical agency focusing on the relat ion bet ween an incumbent officeholder and an elect orate that obt ained information from the news media. Besley and Burgess considered a model in which the media provides informat ion about government performance to the elect orat e, and this induces the government to be responsive to th The New York Times, january 8, 2003
news coverage.”3 The Sierra Club obtained leverage through media coverage of the campaign and through a variety of actions intended to emphasize recent decreases in fleet fuel economy and the seriousness of the global climate change issue. The news media regularly reported on fuel economy data and regulation, and the activists and the industry provided information to influence those reports. For example, environmental activists railed against the introduction of the Hummer H2, which was sufficiently heavy that it was not subject to any fuel economy standards. Earlier, the Sierra Club had campaigned against the Ford Excursion, which it dubbed the Ford Valdez. Ford decided to drop the Excursion. In 2003 the Bush administration increased the light truck standard to 22.2 mpg by model year 2007. The administration argued that the increase would save 2.5 billion gallons of gasoline, but critics claimed that the automobile industry was already planning increases greater than in the new standard. Daniel Becker of the Sierra Club called the action by the Bush administration “irresponsible.” The big three automakers criticized the new standard as costing more than it was worth and costing the nation badly needed jobs. III. Overview A. Literature on the News Media The impact of the news media on public politics is broadly observable (Graber (2000)). For example, following the oil crises in the 1970s Erfle and McMillan (1990) found that media coverage affected the price of home heating oil relative to the price of bunker oil sold to electric utilities. They concluded that oil companies restrained their price increases to forestall a public reaction and possible new regulation. Stromberg (2001) has shown that as the U.S. radio audience increased in the 1930s more relief funds were allocated to counties with more listeners. Besley and Burgess (2002), Besley and Prat (2001), and Besley, Burgess, and Pratt (2002) studied models of political agency focusing on the relation between an incumbent officeholder and an electorate that obtained information from the news media. Besley and Burgess considered a model in which the media provides information about government performance to the electorate, and this induces the government to be responsive to the 3 The New York Times, January 8, 2003. 4
int erests of the public. They test the model using dat a from India and find that st ate government s are more responsive to the public's needs the broader is newspaper readership Besley and Pratt focused on the opportunity for the government to capt ure the media and found that inefficiency and malfeasance can result. In their model the government is a source of informat ion for the media and hence may manipulate that information. In ti model considered here the sources of informat ion are interest groups Stromberg(2002) presented a model in which increasing ret urns to scale and adver- t ising incentives drive the media to provide more information to large and higher income groups than to smaller and lower income groups. These incent ives for media bias can affect public policy. Media bias can also arise from wit hin the news organization. 4 The American AssociationofNewspaperedItors(1999)(www.asne.org/index.cfmd-2632)conducteda survey and concluded, "The public suspect s that the point s of view and biases of jounalists influence what st ories are covered and how they are covered. Alt hough the public broadly views the news media as biased, individuals differ considerably in their percept ion of tI nat ure and direct ion of t hat bias Bovit z, Druckman, and Lupia(2002) used a hierarchical model of a news organization o explain the sources of bias and the forces that act to cont rol it. The sources of bias are the ideological orientations of media elit es, but for those orient ations to influence public nion, editors must eit her accept an ideologically-biased report by a jounalist or bias a report to serve the ideological orient at ion of the owners of the media organization. Bias can be mitigated by the career concerns of edit ors and by the audience. The audience must be willing to read the report, and for it to have influence the media must bias information a direction contrary to the init ial beliefs of the audience ullainat han and Shleifer(2002) provide a model in which bias can arise both from n ideological orient at ion of the news organizat ion and from incentives to tell an interest ing st ory. The ideological bias arises from the preferences of journalist s, and the bias in t heir st ories can be neutralized if there is an ideological balance among competing news organizations. The incentives to tell an int erest ing st ory come from a preference to be wel Attention has also been given to the effect of media compet it ion on programming (Spence and Owen(1977), Owen and Wildman(1992), Noam(1985)(1987)) and to the wel fare analy sis of media compet ition(Anderson and Coate(2001), Hansen and Kyhl(2001) Dukes and GalOr(2001))
interests of the public. They test the model using data from India and find that state governments are more responsive to the public’s needs the broader is newspaper readership. Besley and Pratt focused on the opportunity for the government to capture the media and found that inefficiency and malfeasance can result. In their model the government is a source of information for the media and hence may manipulate that information. In the model considered here the sources of information are interest groups. Stromberg (2002) presented a model in which increasing returns to scale and advertising incentives drive the media to provide more information to large and higher income groups than to smaller and lower income groups. These incentives for media bias can affect public policy. Media bias can also arise from within the news organization.4 The American Association of Newspaper Editors (1999) (www.asne.org/index.cfm?d=2632) conducted a survey and concluded, “The public suspects that the points of view and biases of journalists influence what stories are covered and how they are covered.” Although the public broadly views the news media as biased, individuals differ considerably in their perception of the nature and direction of that bias. Bovitz, Druckman, and Lupia (2002) used a hierarchical model of a news organization to explain the sources of bias and the forces that act to control it. The sources of bias are the ideological orientations of media elites, but for those orientations to influence public opinion, editors must either accept an ideologically-biased report by a journalist or bias a report to serve the ideological orientation of the owners of the media organization. Bias can be mitigated by the career concerns of editors and by the audience. The audience must be willing to read the report, and for it to have influence the media must bias information in a direction contrary to the initial beliefs of the audience. Mullainathan and Shleifer (2002) provide a model in which bias can arise both from an ideological orientation of the news organization and from incentives to tell an interesting story. The ideological bias arises from the preferences of journalists, and the bias in their stories can be neutralized if there is an ideological balance among competing news organizations. The incentives to tell an interesting story come from a preference to be well 4 Attention has also been given to the effect of media competition on programming (Spence and Owen (1977), Owen and Wildman (1992), Noam (1985)(1987)) and to the welfare analysis of media competition (Anderson and Coate (2001), Hansen and Kyhl (2001), Dukes and Gal-Or (2001)). 5
t hought of by readers, and in a psychology-based model of the audience these incentives can produce bias. In the model considered here bias results from the assumed responsibilit ies of the media to serve the public, in t his case by mitigat ing a market failure and a government failu A number of cross-country st udies have been conducted on the influence of the media on politics and the economic performance of count ries. In the realm of private politics Dyck and Zingales(2002) consider the effect of the news media on the behavior of corpo- rat e execut ives and direct ors in choosing " socially responsible"corporate activities. They conclude that the media has subst antial impact on the environment al policies of firms and on governance. In the model present ed here the news media influences the public in both t heir consumpt ion decisions and in their collective choice on regulation Hamilt on(1996) argued t hat television programming exhibits market failures in edu- cational programming for children, public affairs coverage, and indecent and violent pro- gramming. The market failures result in an oversupply of programming with negative externalities and an undersupply of programming with positive externalit ies. He argued for regulat ion to correct the market failures. In the model present ed here the media acts in response to a market failure arising not from wit hin the media market but among the ublic B. Overview of the model The model focuses on the compet ition bet ween activ ists and firms and the role of the ews media in that compet ition. The model describes how the media informs the publ based on informat ion provided by an activist, firms, and possibly its own investigative journalism. The model provides an explanation of media bias as a funct ion of media preferences and the opport unity to influence the public. It also provides an explanation for the communicat ion strat egies of the activist and the firms. Ultimat ely, a theory should ident ify the role of the news media in int erest group compet ition as a private inst itut ion with"officeholders" who self-select into the profession of journalism. The current model provides a first step in that direction At the center of the compet ition bet ween the activist and the firms are a private consumpt ion decision of citizen consumers and a collective choice to regulate the product they consume. The private decision pert ains to a product that has associated wit h it an
thought of by readers, and in a psychology-based model of the audience these incentives can produce bias. In the model considered here bias results from the assumed responsibilities of the media to serve the public, in this case by mitigating a market failure and a government failure. A number of cross-country studies have been conducted on the influence of the media on politics and the economic performance of countries. In the realm of private politics Dyck and Zingales (2002) consider the effect of the news media on the behavior of corporate executives and directors in choosing “socially responsible” corporate activities. They conclude that the media has substantial impact on the environmental policies of firms and on governance. In the model presented here the news media influences the public in both their consumption decisions and in their collective choice on regulation. Hamilton (1996) argued that television programming exhibits market failures in educational programming for children, public affairs coverage, and indecent and violent programming. The market failures result in an oversupply of programming with negative externalities and an undersupply of programming with positive externalities. He argued for regulation to correct the market failures. In the model presented here the media acts in response to a market failure arising not from within the media market but among the public. B. Overview of the Model The model focuses on the competition between activists and firms and the role of the news media in that competition. The model describes how the media informs the public based on information provided by an activist, firms, and possibly its own investigative journalism. The model provides an explanation of media bias as a function of media preferences and the opportunity to influence the public. It also provides an explanation for the communication strategies of the activist and the firms. Ultimately, a theory should identify the role of the news media in interest group competition as a private institution with “officeholders” who self-select into the profession of journalism. The current model provides a first step in that direction. At the center of the competition between the activist and the firms are a private consumption decision of citizen consumers and a collective choice to regulate the product they consume. The private decision pertains to a product that has associated with it an 6
unregulat ed externality. The collective choice is whether to regulate the ext ernality, where the form of regulation is a product st andard. The private decisions of cit izen consumers may be thought of as whet her to purchase a low fuel economy vehicle, and the public decision may be thought of as whet her to impose a CaFe st andard Cit izen consumers have incomplet e informat ion about the seriousness of t he externality, nedia pr des a soft report on the seriousness based on information fr it s sources and its own invest igat ive journalism. Citizen consumers are rational and take int o account the possible bias in the report from eit her the news media or its sources. The ources are an activ ist, whose int erest s are in dampening the demand for the product and regulat ing the externality, and firms that produce the product and oppose regulation The act ivist and the firms are better informed t han is the media, and they act strate gically to influence the medias news report. Their influence takes the form of advocacy, where they communicate favorable(hard) informat ion to the media and may conceal un- favorable information. The media may investigate the seriousness of the ext ernality if it does not receive hard informat ion from the act ivist or the firms. Invest i both informs the media and provides an opport unity to expose possible concealment by its sources. If concealment is exposed, the activist or the firms suffer reput at ion damag The firms are assumed to compete in the market but to act collect ively as an industry in dealing wit h the activist, the media, and the public. Citizen consumers are sophisticat and ant icipat ethe st rat egies of the activist, firms, and media. They subscribe tothe media's service only if they expect to benefit from it, and those who do not subscribe benefit from an informational spillover The preferences of the activist are to mitigate the ext ernality, and the firms maximize their profit s. The objectives of the news media are a combination of profit s, journalist ic responsibilities, and jourmalist ic performance. The responsibilities pert ain to its role in society to serve the public by providing informat ion to cit izen consumers to improve thei private and collect formance pert ains to exposing concealment by urces. which enhance the media's reput at io The model focuses on t he case in which the media can influence the collect ive decision Collective action by firms in public s is allowed under the Noerr Penning or doct rine based on the right to free speech
unregulated externality. The collective choice is whether to regulate the externality, where the form of regulation is a product standard. The private decisions of citizen consumers may be thought of as whether to purchase a low fuel economy vehicle, and the public decision may be thought of as whether to impose a CAFE standard. Citizen consumers have incomplete information about the seriousness of the externality, and the news media provides a soft report on the seriousness based on information from its sources and its own investigative journalism. Citizen consumers are rational and take into account the possible bias in the report from either the news media or its sources. The sources are an activist, whose interests are in dampening the demand for the product and regulating the externality, and firms that produce the product and oppose regulation. The activist and the firms are better informed than is the media, and they act strategically to influence the media’s news report. Their influence takes the form of advocacy, where they communicate favorable (hard) information to the media and may conceal unfavorable information. The media may investigate the seriousness of the externality if it does not receive hard information from the activist or the firms. Investigative journalism both informs the media and provides an opportunity to expose possible concealment by its sources. If concealment is exposed, the activist or the firms suffer reputation damage. The firms are assumed to compete in the market but to act collectively as an industry in dealing with the activist, the media, and the public.5 Citizen consumers are sophisticated and anticipate the strategies of the activist, firms, and media. They subscribe to the media’s service only if they expect to benefit from it, and those who do not subscribe benefit from an informational spillover. The preferences of the activist are to mitigate the externality, and the firms maximize their profits. The objectives of the news media are a combination of profits, journalistic responsibilities, and journalistic performance. The responsibilities pertain to its role in society to serve the public by providing information to citizen consumers to improve their private and collective choices. Journalistic performance pertains to exposing concealment by sources, which can enhance the media’s reputation. The model focuses on the case in which the media can influence the collective decision. 5 Collective action by firms in public politics is allowed under the Noerr Pennington doctrine based on the right to free speech. 7
That is, in the absence of the media the collective choice is not to regulate, but if the medias report indicat es that the ext ernality is very serious, the collect ive choice is to regu- late. Because of its responsibility to serve cit izen consumers in their private and collective hoices, the news media may have an incent ive to bias its report in the direction of great seriousness of the issue when there is a collective choice failure and t hus lead cit izens to regulate the externality. The news media has an opport unity to bias its report only when it does not have hard information eit her from its sources or its own invest igat ion Figure I illustrat es the model and ident ifies the influences on private and public politics The news media also might be able to affect the privat e decisions of cit izen consumers by causing them to take the ext ernality into account in their consumpt ion decisions. This moral suasion can be a subst it ute for regulat ion C. Results Demand for the firms' product and industry profit are decreasing in cit izen consumers beliefs about the seriousness of the ext ernality and the ext ent to which they int ernalize consumers'valuation for the product, since regu. e support for regulation is decreasing in t ion reduces the value ofthe product. The number of citizens who prefer regulat ion is increasing in the seriousness of the ext ernality but is decreasing in the ext ent to which consumers int emalize the ext ernality. The news report thus can direct ly affect the private decisions of consumers and the indust ry as well as the collect ive choice on regulat ing the externality. The activist and the indust ry may provide hard information to the media, and their communicat ion strategies take the form of advocacy, where the sources present favorable information and may conceal unfavorable information. The medias beliefs that the ext er nality is serious are increasing in the probability that the indust ry conceals unfavorable information and decreasing in the probability that the act ivist conceals unfavorable infor mation. These propert ies carry over to the public's beliefs given a news report that th externality is serious The media reports hard information when it has it, but when it has no hard informa tion, it can bias its report. The incent ive for bias is due to preferences that depend on th aggregate welfare of the public, whereas the collective choice is det ermined by the pivot al voter. This incent ive is only present when the media can influence the collective choice, so
That is, in the absence of the media the collective choice is not to regulate, but if the media’s report indicates that the externality is very serious, the collective choice is to regulate. Because of its responsibility to serve citizen consumers in their private and collective choices, the news media may have an incentive to bias its report in the direction of greater seriousness of the issue when there is a collective choice failure and thus lead citizens to regulate the externality. The news media has an opportunity to bias its report only when it does not have hard information, either from its sources or its own investigation. Figure 1 illustrates the model and identifies the influences on private and public politics. The news media also might be able to affect the private decisions of citizen consumers by causing them to take the externality into account in their consumption decisions. This moral suasion can be a substitute for regulation. C. Results Demand for the firms’ product and industry profit are decreasing in citizen consumers’ beliefs about the seriousness of the externality and the extent to which they internalize the externality associated with their purchases. The support for regulation is decreasing in consumers’ valuation for the product, since regulation reduces the value of the product. The number of citizens who prefer regulation is increasing in the seriousness of the externality but is decreasing in the extent to which consumers internalize the externality. The news report thus can directly affect the private decisions of consumers and the industry as well as the collective choice on regulating the externality. The activist and the industry may provide hard information to the media, and their communication strategies take the form of advocacy, where the sources present favorable information and may conceal unfavorable information. The media’s beliefs that the externality is serious are increasing in the probability that the industry conceals unfavorable information and decreasing in the probability that the activist conceals unfavorable information. These properties carry over to the public’s beliefs given a news report that the externality is serious. The media reports hard information when it has it, but when it has no hard information, it can bias its report. The incentive for bias is due to preferences that depend on the aggregate welfare of the public, whereas the collective choice is determined by the pivotal voter. This incentive is only present when the media can influence the collective choice, so 8