The 'Make and/or Buy' Decisions of Corporate Political Lobbying: Integrating the Economic Efficiency and Legitimacy Perspectives

Abstract

This paper examines political lobbying and investigates firms’ decisions regarding whether to employ internal functionalities (i.e., to “make” or insource), to contract with external professionals (i.e., to “buy” or outsource), or to do both (i.e., to “make and buy” or plural source). I first develop an integrated framework based on the twin perspectives of economic efficiency and legitimacy. When the political audience faces little uncertainty about lobbying content, firms make sourcing decisions to maximize economic efficiency in producing such content in line with transaction cost economics and the capabilities view. However, when the political audience faces substantial uncertainty about lobbying content, it relies on the perceived legitimacy of the lobbying entity to draw inferences about the quality of the such content; therefore, the legitimacy of a potential lobbying entity matters to firms making sourcing decisions related to lobbying. Then, I connect firms’ sourcing decisions with several concrete characteristics of lobbying entities that can affect political audiences’ judgment regarding their legitimacy. Finally, I examine the tension that develops when legitimacy and economic efficiency considerations call for different forms of sourcing, and I examine how complementarities in plural sourcing help resolve this tension in certain situations.