Does foreign media entry discipline or provoke local media bias?

• DOI: http://doi.org/10.1111/ijet.12099
• Date: 01 December 2016
• Published date: 01 December 2016
• Author: Hon Foong Cheah

doi: 10.1111/ijet.12099

Does foreign media entry discipline or provoke local

media bias?

Hon Foong Cheah∗

This paper studies how the entry of an imperfectly informed foreign media outlet removes the

government’s roleas the sole provider of information, altering its repor ting tomaximize citizen

support. We find that while foreign media entry typically lowers local media bias, it can also

exacerbate bias in countries with an incompetent government. The resulting deterioration in

local media quality can outweigh the additional information from a foreign media of moderate

quality, leaving citizens worse off. When analyzing a government’s decision to suppress foreign

media, we find that suppression is most heavily used in countries with a moderately competent

government.

Key wor ds Government control of media, media bias, welfare implication

JEL classification D83, D82, D72

Accepted 17 February 2015

1 Introduction

Social scientists generally agree that press freedom promotes better governance1and is crucial in

maintaining a well-functioning democracy. In countries where the government controls the press,

the need for unbiased information drives citizens to seek alternative news sources. While the dis-

semination of subversive literature has existed since the birth of the printing press, todayprohibited

information is accessible on social media and blogs with the help of ingenious hackers circumvent-

ing the Internet firewall.2As communication technology continues to improve, the notion that a

government can control or manipulate all information outlets becomes more unrealistic.

There is a sense that the appearance of a new foreign source of information enables the public

to make better-informed choices. However, this simple story ignores the interaction between foreign

media and pre-existing sources of information through government-controlled media. This interac-

tion and the resulting overall effect on information and on citizens’welfare are the focus of this paper.

Wefind that the interaction effect can reinforce the basic story, or overturn it. Tomodel government

control of the media, we follow Gehlbach and Sonin (2009) who assume a program that promises

potential benefit to citizens who invest in it. This investment is a metaphor to capture in a simple

way a potential conflict of interest between government and individual citizens. A citizen’s decision

∗Zhejiang University of Science and Technology, Xihu District, Hangzhou, Zhejiang Province, China. Email:

honfcheah@gmail.com

1Representativeliterature includes Brunetti and Weder (2003) on media freedom and corruption, Ravallion (1997) on the

effect of the presence of an international news outlet on the incidence of famine, and Snyder and Str¨

omberg (2004) and

Str¨

omberg (2004) on the impact of the media on citizen responsiveness to political issues.

2See Parry (2008) on the role of mobile phones in spreading news on the North Koreanfood crisis.

International Journal of Economic Theory 12 (2016) 335–359 © IAET 335

International Journal of Economic Theory

Foreign media entry and local media bias Hon Foong Cheah

to invest represents any action that the government wants from individual citizens, to further its

ideological goals, to enhance its political power, or to seek collective support for certain economic

policies. Since these actions may be costly to individual citizens, through control of the media a gov-

ernment is tasked with persuading citizens to undertake its desired action by exaggerating the degree

to which the action is in their best interests. But citizens are aware of the government’s propensity to

exaggerate, and so discount its media reports accordingly.

While foreign media represent an additional information source for citizens to make better-

informed choices, we assume that the government cannot manipulate foreign media reports, and its

information is accessible to citizens at no additional cost. This departs from the assumption in some

parts of the literature of complete reliance on a single source of information (Gehlbach and Sonin

2009), and that all information outlets are susceptible to government manipulation (Besley and Prat

2006). Two additional restrictions are imposed on the nature of information available to citizens.

First, the foreign media, as “outsiders”, rely on less accurate information sourcescompared to those

available to government-controlled media, which indirectly reflectsthe government’s ability to stifle

the access of foreign media to relevant information sources.3Second, foreign media maximize their

advertising profit by maintaining a truth-telling editorial policy, ignoring the profit motive that

biases reporting to conform with its audience’s prior beliefs.4Both restrictions imply a government-

controlled media sector that is accurate but biased due to its propensity to exaggerate; and a foreign

media sector that is unbiased but potentially inaccurate. Therefore citizens treat both sources of

information as complements,5and any changes in the government’s propensity to exaggerate alters

the quality of information available to citizens and affect their investment decisions.

The interaction between the government and the general public relates to Kamenica and

Gentzkow (2011), where a government-controlled media sector can commit to a specific editorial

policy, allowing the general public to decide their investment strategy based on media reports. The

government need not worry about the public’s interpretationof its action, eliminating the possibilit y

of a babbling equilibrium, an equilibrium in which only uninformative information is transmit-

ted between a sender and a receiver. On the subject of media suppression, Besley and Prat (2006)

highlight that the existence of a greater number of independent news outlets raises the likelihood

of press freedom because a government is required to pay each outlet the sum they would earn in a

monopoly news market. But our focus here is different because we assume that independent news

reports cannot be silenced. Gehlbach and Sonin (2009) highlight two different methods of media

control: bribery and government takeover,and show that increasing the importance of a news outlet’s

advertising revenue increases a government’s incentive to take over domestic news outlets.6While

our framework closely resembles that of Gehlbach and Sonin (2009), our main focus in on the influ-

3Toinfluencenews repor ting, governmentrewards with inside scoops those outlets that report favorably on the government,

while preventingaccess to outlets that provide accurate information to maximize advertising revenue from their audience.

See Besley and Prat (2006, section II.D) for a discussion.

4This is also known as ‘demand-side bias’. Representative papers include Gentzkowand Shapiro (2006), which examines

the reputation incentiveof inaccurate media outlets to bias their reporting to conform with their consumers’ prior beliefs.

Mullainathan and Shleifer (2005) discuss media outlets’ incentiveto bias reporting in order to segment consumers with

different prior beliefs. Groseclose and Mylio (2005) and Gentzkow and Shapiro (2006) demonstrate a relation between

media bias and audiences’ political beliefs in the UnitedStates newspaper market.

5During the Cold War,Russians tuned to foreign broadcasts such as Voiceof America and Radio Liberty for “infor mation

sources that they may not always believe, but that was alwaysavailable as a check on the generally accepted unreliability

of their own broadcast and newspapers” (Shanor 1985).

6In a different institutional setting, Gentzkowet al. (2006) attribute the increase in informativeness in US newspapers from

1870 to 1920 to increasing the importance of advertising revenue.

336 International Journal of Economic Theory 12 (2016) 335–359 © IAET