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
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
