# Presentation: 375426

## FACTORS AFFECTING THE FORMATION OF INTEREST GROUPS

- Aileen G. Sampson
- Clemson University
- Clemson, SC

## Introduction

- Clemson, SC example
- In 2000, Wal-mart proposed Supercenter construction in Clemson on Issaqueena Trail.
_*Citizens for Responsible Growth in Clemson*_ opposed Wal-mart.
- Wal-mart waged extended, expensive legal battle.
- 2006, no Wal-mart store in Clemson.
- In 2002, Wal-mart built a Supercenter in neighboring Central. Wal-mart faced no citizen opposition to their locating in Central.

## Introduction

- Examples of Promotional Interest Groups
- Citizens for Responsible Growth in Clemson
- The National Rifle Association
- The American Association of Retired Persons
- The Waterville Women’s Association

## Introduction

- What is a promotional interest group?
- An entity filing under Internal Revenue Code (IRC) section 501  (c) (4)
- Civic Leagues and Social Welfare Organizations
- Not charities
- Contributions, generally, not tax deductible
- Purpose:  advocate policy positions

## Introduction

- Why study the formation patterns of these groups?
- Economic impact
- In 1999, 21,082 promotional interest groups reported $41.6 billion in revenue and held $59.5 billion in assets
- Influence economic policy nationally and locally
- Influence industrial and business patterns
- Can oppose businesses
- Can support businesses

## Introduction

- The objective of this study is to identify community characteristics that encourage or discourage the formation (mobilization) of groups like Citizens for Responsible Growth in Clemson.
- At issue is the opportunity cost of acquiring influence.
- Related studies have not considered as many community factors or as many communities as this study considers.

## Literature Review

- _Interest Group Theory of Government_
-   Political operatives are self-interested economic agents whose behavior can be explained using general economic principles.

## Literature Review

- Political Scientists Bentley(1908; 1967) and Truman (1951) speak to significance of interest groups in shaping political landscape.
- Economists have enhanced and refined the observations of Bentley and Truman.

## Literature Review

- Olson (1965) questions why individuals join large pressure groups.
- Olson concludes lobbying activity is a by-product of private goods provision (a purpose other than lobbying).

## Literature Review

- Stigler (1971) examines regulatory activity as a market phenomenon.
- Demanders: special interest groups
- Suppliers: those bearing costs of regulation
- Legislative bodies: brokers facilitating wealth transfers

## Literature Review

- Peltzman (1976) builds on Stigler’s work.
- Provides quantitative, general model of legislative decision-making process
- Models legislator as a vote (majority) maximizer subject to wealth constraints

## Literature Review

- Becker (1983) explores competition among interest groups for influence.
- Concludes wealth transfers are smaller when there is competition among interest groups for influence

## Literature Review

- Two papers provided the theoretical citations used to determine the list of factors to include in the empirical work.

## Literature Review

- Gronbjerg and Paarlberg (2001) use Internal Revenue Service (IRS) data on advocacy nonprofits in Indiana counties to  examine variations in the density of nonprofit organizations.

## Literature Review

- Murrell (1984) studies “sectional” groups.  The groups in his study are trade associations.  He uses international data from the Organization for Economic Cooperation and Development (OECD) to test 11 hypotheses about interest group formation.

## Approach

- Each cited theory suggests one or more factors as possible determinants of interest group formation.
- 13 hypotheses were formulated and tested based on the theories cited in Murrell (1984) and Gronbjerg and Paarlberg (2001).

## Empirical Method Summary

- Dependent variable: Number of interest groups per capita (density)
- Model:  y=a+βX1+ βX2+βX3+ ...+ε
- Population density is raised to -.25.
- All other variables untransformed.
- 30 continuous variables
- 4 regional indicator variables
- 8 population size categories
- Estimation Method:  OLS

## Data Summary

- Circa 2000
- County-Level
- Government and Private Sources
- IRS Business Master Files
- Census Bureau
- Bureau of Labor Statistics
- Glenmary Research Center

## Theory Classes

- Structural Theories
- Government Theories
- Voting Theories
- Socioeconomic Theories
- Community “Needs” Theories

## Support for Structural Theories

- Structural Measures

## Support for Government Theories

| Description | Theory Predicts | Elasticity | P>|t| |
| --- | --- | --- | --- |
| Expenditure per capita | + | 0.09 | 0.00 |
| Cities, Towns, Special Districts, School Districts | + | 0.06 | 0.00 |
| Degree of Decentralization | + |  |  |

- Government Measures

## Support for Socioeconomic Theories

## Support for Voting Theories

- There is no support found for the voting theory(ies).

## Support for Community “Needs” Theories

- There is no support found for the community “needs” theory(ies).

- Community “Needs” Measures

## ImplicationsTo minimize likelihood of resistance:

- Locate in the Southern region in an urban center removed from the state capital.
- Locate in a community featuring a small middle class, small over-65 segment, fewer charities, and higher voter participation rates on average.
- Locate where there are many different religious denominations, but only one or two dominant religions.  The percentage of the population adhering to religion should be relatively low.

## The END