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Authors are listed in alphabetical order and contributed equally. Both gratefully recognize the support of Harvard's Institute for Quantitative Social Science.
This paper received the 2009 Robert H. Durr Award from the Midwest Political Science Association for "the best paper applying quantitative methods to a substantive problem." A previous version was circulated under the title "The Value of Political Power: Estimating the Returns to Office in Post-War British Politics." We thank Alberto Abadie, Jim Alt, Sebastian Bauhoff, Ryan Bubb, Jeff Frieden, Adam Glynn, Justin Grimmer, Torben Iversen, Mike Kellermann, Gary King, Roderick MacFarquhar, Clayton Nall, Riccardo Puglisi, Kevin Quinn, Jim Robinson, Don Rubin, Ken Shepsle, Beth Simmons, Patrick Warren, three anonymous reviewers, the editors, and seminar participants at Harvard, MIT, the Penn State New Faces in Political Methodology Conference, and the NBER Political Economy Student Conference for helpful comments. For excellent research assistance, we thank Matthew Hinds, Nami Sung, and Diana Zhang. We would especially like to thank Jim Snyder, who directly inspired this project. The usual disclaimer applies.
"We are not supposed to be an assembly of gentlemen who have no interests of any kind and no association of any kind. That is ridiculous. That may apply in Heaven, but not, happily, here."
--Winston Churchill, characterizing the House of Commons in 1947
In October 1989, Nigel Lawson resigned after six years as Chancellor of the Exchequer under Margaret Thatcher. Four months later, while still a Member of Parliament (MP), Lawson was named a nonexecutive director at Barclays Bank with a salary of 100,000 British pounds (GBP)--roughly four times his MP pay. The afternoon the appointment was announced, Barclays' market value rose by nearly 90 million pounds (Hollingsworth 1991, 150).
Such anecdotes suggest that political connections can be of great value to private firms. In a number of recent papers, scholars have begun to systematically examine this value in a variety of settings. Firms with personal and/or financial connections to politicians have enjoyed higher stock valuations in Indonesia (Fisman 2001), the United States (Goldman, Rocholl, and So n.d.; Jayachandran 2006; Roberts 1990), Malaysia (Johnson and Mitton 2003), and Nazi Germany (Ferguson and Voth 2008). In the United States, politically connected firms are more likely to secure procurement contracts (Goldman,...