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We present a game-theoretic model of the social dynamics of belief change in which the (relevant) logically non-omniscient audience becomes convinced that the speakers' messages are `true' because its own prior beliefs logically entail them, rather than — as in cheap-talk models — because the speaker is (endogenously) trustworthy. We characterize the equilibria of the game and consider how their aggregate informational properties change with the variation in the institutions determining the ability of the speakers to reach their audience. We find that for plausible restrictions on the distribution of arguments and on the corresponding policy preferences in society, the informationally optimal institutions are first-best implementable, inegalitarian with respect to the resource allocation across speakers, and assign priority to the (more) extreme argument- and policy-holders.

We present a game-theoretic model of the social dynamics of belief change in which the (relevant) logically non-omniscient audience becomes convinced that the speakers' messages are `true' because its own prior beliefs logically entail them, rather than - as in cheap-talk models - because the speaker is (endogenously) trustworthy. We characterize the equilibria of the game and consider how their aggregate informational properties change with the variation in the institutions determining the ability of the speakers to reach their audience. We find that for plausible restrictions on the distribution of arguments and on the corresponding policy preferences in society, the informationally optimal institutions are first-best implementable, inegalitarian with respect to the resource allocation across speakers, and assign priority to the (more) extreme argument- and policy-holders. [Reprinted by permission of Sage Publications Ltd., copyright 2007.]

Regulatory agencies impose costs and benefits tailored to individual firms through their discretionary enforcement activities. We propose that corporations use political expenditures in part to "flex their muscles" to regulators and convey their willingness to fight an agency's specific determinations in the political arena. Because the signaling function of political expenditures is strategically complex, we derive a formal model wherein we demonstrate the existence of an equilibrium in which (1) large political donors are less compliant than smaller ones, but the bureaucracy monitors themless, and (2) firms with publicly observable problems reduce their political expenditures. We test the empirical implications of the model using plant-level data from the Nuclear Regulatory Commission on the inspection of 63 privately operated nuclear power plants and the political expenditures of their parent companies. We find strong evidence for the first prediction and qualified support for the second.