Some Economics of Contractual Restrictions on Political Contributions by Cable Pundits

Josh Wright —  7 November 2010

Jonathan Adler and Orin Kerr chime in over at VC to make the point that MSNBC’s rules against contributions from television personalities is pointless, or perhaps counterproductive.  Here’s Adler:

I agree with Orin that strict application of rules against political activity by journalists to opinionated commentators and hosts is silly.  No one believes these figures are neutral or objective journalists.  They’re not reporters; they are commentators and entertainers.  They have strong — often quite partisan — political views, and that’s part of their appeal.  Whether or not Olbermann (or Hannity) gives a dime to a political campaign, we all know which candidates and causes they support.

And here’s Professor Kerr:

I find this exceedingly silly. Keith Olbermann is not shy about his personal views, and no one who has watched him has any doubt as to who he supports. Why he should be suspended for donating money to the candidates he supports is a mystery to me.

There appears to be some debate over whether Olbermann’s conduct violated provisions in his contract.  Assuming Olbermann did violate the contractual obligation to seek permission before donating, that seems like a pretty good reason to suspend someone.  I doubt that either Jonathan or Orin mean that flouting contractual obligations is a silly or exceedingly silly or mysterious reason to suspend someone — instead, they must mean that it is silly for those obligations to appear in the contract in the first place.

Maybe.  Maybe not.  But I suspect not.  Here’s why.

This story suggests that not just MSNBC, but also CNN, and presumably other networks have similar restrictions.  Economic conventional wisdom suggests that if many in an industry adopt the same provision, there might well be a non-silly, and perhaps even efficient, reason for the restriction.   I don’t think its too difficult to conceive of such a reason here.  For example, on the margin, some consumers might well adjust their viewing behavior depending on their assessment of how independent the analysis offered by pundits is.  Or perhaps viewers are willing to tolerate bias up to a point, but the idea that the commentator is financially supporting a particular candidate might turn some off.

Adler and Kerr share the presumption that viewers know the biases of Olbermann and others.  As Adler puts it, “No one believes these figures are neutral or objective journalists.  They’re not reporters; they are commentators and entertainers.”  But is that a sensible empirical presumption?  Maybe it is.  I’m not sure.  But the same could be said for the allocation of grocery products on supermarket shelf space, or music on radio station playlists.  Radio payola, product placement, and supermarket slotting fees are institutions that influence what products are available to consumers and have been around much longer than cable new political punditry; one could argue that because consumers know that the song on the radio is not selected “independently” from influence from its producer (e.g. through payola payments) and have known for a very long time, they should not care.  But, in fact, in some markets consumers do in fact care a great deal about the manner in which the product is provided.  The point is not that political punditry is like groceries!  Just that the link between the obviousness of the bias and consumer indifference is not as clear, I do not think, as either Adler or Kerr presume.  There is, as they say, no accounting for tastes.

From an economist’s perspective, one question that arises is if viewers really don’t care about contributions, why do (apparently) many or all of the networks adopt similar restrictions?  I suggest here only that perhaps the assumption is incorrect, that there are some viewers on the margin that care, and that competition between networks generates these types of restrictions because they want those consumers on the margin.  Now, one can always argue that consumers shouldn’t care about these disclosures because we should all know how biased Olbermann or Beck or Hannity or Maddow are and so there is no additional revelation of information when political contributions are disclosed.  But that’s less interesting to me than whether the disclosures alter behavior at the margin.

Indeed, MSNBC’s Rachel Maddow argues that these sorts of rules do in fact matter (and should matter) for consumers:

Maddow agreed Olbermann deserved repercussions for violating a stated policy, but added that the incident’s true value is its exposition of the differences between MSNBC and Fox, not the similiarites.

“Their network is run as a political operation. Ours isn’t. Yeah, Keith’s a liberal, and so am I. But we’re not a political operation – Fox is. We’re a news operation. The rules around here are part of how you know that,” she said.

Now, I have no idea whether Fox has similar restrictions or not.  And I’m not very interested in a discussion of Fox v. MSNBC in general.  But I thought the discussion thus far provided a nice opportunity to make a simple economic point: when one observes a common contractual provision in competitive markets, there is usually (but not always) an efficiency rationale for its existence.  One should begin there rather than the presumption that the contractual restriction adopted by numerous firms in the industry makes no economic sense.