ical advantage is framed as influence doled out to a select few firms or interests. However, in the framing that we laid out at the beginning of the paper, these relationships can be squarely understood. If, as governance improves, one would expect openness and the balancing of interests (including the public _writ large_ ), so too would one anticipate higher entry and transaction costs to exert political influence. To generalize, the conceptual framework laid out at the beginning of the paper seems to undergird a finding in the data itself: open, transparent, and pluralistic governance renders political influence more expensive, resulting in fewer firms exerting such influence, and a broader distance between the most and least influential. In combination with our finding that the overall distribution of Political Influence tends to be higher in environments with diminished governance, these results imply a relationship where influence is greater on average in contexts that allow it to be exerted relatively freely, but that such political pressure will be met with often competing firms attempting to compensate for such influence themselves.<sup>37</sup>

# **4.3 Political and Firm-level Outcomes**

In this sub-section we present firm-level estimates of the relationship between our index and key outcome variables. Following from several earlier works (e.g. Hillman (1982); Becker (1983); Grossman and Helpman (1994)), we consider that the exertion of influence creates a deadweight loss to public welfare, and that this loss is a cost to politicians, who risk retribution from the public; it is a benefit to the firms, who are thus willing to expend influence to secure those gains.<sup>38</sup> As previously established, we expect more accountable governance to extract dearer costs from politicians who allow or contribute to larger deadweight losses. We consider that the principal way firms realize the spoils of their influence is through demanding protection from competition, either through the restriction of new entrants or, commonly, through trade protectionism. This means that competition is likely oligopolistic, where firms are few and affect others, settling into a Cournot-Nash equilibrium (see Becker (1983)). That is, our expectations follow recent work on market power—in this case, emerging from influence. In this framework, we expect market competition to be limited, larger revenues to accrue to fewer firms, but for those revenues to be realized with less intensive input use, e.g. through a lower labor cost share of production (De Loecker et al., 2020).

Table 5 presents several regressions using the generic OLS form: where _Yi_ is one of four key outcomes. First, we include a dependent dummy variable that equals 100 (scaled for the easier interpretation of results) if a firm reports that in its main market it faces fewer than 20 competitors.<sup>39</sup> The second key outcome variable is the log of total sales, standardized to 2009 USD.

> 37Some readers will note that such barriers to entry (here, the higher relative cost of political influence in higher governance environments) and transactional costs mimic the industrial organization literature on productivity dispersion. 38Hillman (1982) and Grossman and Helpman (1994) establish these gains particularly in the form of trade protectionism.

> 39The ES data include a question that asks respondents to list the number of competitors they face in their main market, which included a pre-coded option of “too many to count”. The cutoff of 20 corresponds to the average median value of

26