One way that citizens can become involved in public policy issues is to join interest groups that share their interests. By accumulating a large membership of voters, and by amassing resources in the form of dues, interest group leaders influence public policy. Individual members face the same incentive problems with interest groups as they do as voters. Each individual member will have negligible influence over the interest group’s activities. They can either choose to join and contribute, or not, but members are still excluded from the political marketplace. Their collective contributions convey power to the leaders of those interest groups, who are able to transact with the political elite in the political marketplace. As individuals, members of interest groups remain powerless. The leaders of those groups gain the bargaining power to enter the political elite.

Whereas goods and services can be exchanged through bilateral transactions, political outcomes typically require collective agreement. For example, legislation typically requires the approval of a majority of the legislature. Rent-seeking models often depict rent-seeking as a contest in which the rent goes to the highest bidder. In the actual political marketplace, there are not rents that are available to bidders, and rarely is there a single contact point through which rent-seekers can bid for and be awarded rents. Government activity is initiated by some demand for access to government power. This chapter explains the interactions between suppliers and demanders for access to government power and analyzes the institutions within which the negotiating process produces public policies.