Competitive Equilibrium in Markets for Votes
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When confronted with the choice between two alternatives, groups, committees, and legislatures typically rely on majority rule. They do so for good reasons: as shown by May (1952), in binary choices, majority rule is the unique fair, decisive and monotonic rule. In addition, majority rule creates incentives for sincere voting: in environments with private values, it does so regardless of the information that voters have about others’ preferences. A long tradition in political theory analyzes conditions under which majority voting yields optimal public decisions or has other desirable properties.
An obvious weakness of majority rule is its failure to reflect intensity of preferences: an almost indifferent majority will always prevail over an intense minority. However, if votes can be freely traded as if they were commodities, then preference intensities could be reflected in the final vote. A natural intuition comes from the general theory of competitive equilibrium. Just as markets allocate goods in a way that reflects preferences, vote markets may allow voters who care more about the decision to buy more votes (and hence more influence), compensating other voters with money transfers (see, e.g., Buchanan and Tullock, 1962, Coleman, 1966, Haefele, 1971, Mueller, 1973, and Philipson and Snyder, 1996). On the other hand, a critique against vote markets arises from the externalities that bilateral vote trading imposes on third parties. Brams and Riker (1973), for instance, present examples in which exchanges of votes across issues are profitable to the pair of traders involved, and yet the committee obtains a Pareto inferior outcome. McKelvey and Ordeshook (1980) test the hypothesis in experimental data and conclude that the examples are not just theoretical curiosities, but can actually be observed in the laboratory. Unfortunately, there is no theoretical work that clearly identifies when we should expect such vote trading inefficiencies to arise in general, and when instead more positive results might emerge.2 To date there is no adequate model of decentralized trade in vote markets and so general questions about equilibrium allocations when voters can exchange votes with each other remain unanswered. Download free Competitive Equilibrium in Markets for Votes.pdf here
An obvious weakness of majority rule is its failure to reflect intensity of preferences: an almost indifferent majority will always prevail over an intense minority. However, if votes can be freely traded as if they were commodities, then preference intensities could be reflected in the final vote. A natural intuition comes from the general theory of competitive equilibrium. Just as markets allocate goods in a way that reflects preferences, vote markets may allow voters who care more about the decision to buy more votes (and hence more influence), compensating other voters with money transfers (see, e.g., Buchanan and Tullock, 1962, Coleman, 1966, Haefele, 1971, Mueller, 1973, and Philipson and Snyder, 1996). On the other hand, a critique against vote markets arises from the externalities that bilateral vote trading imposes on third parties. Brams and Riker (1973), for instance, present examples in which exchanges of votes across issues are profitable to the pair of traders involved, and yet the committee obtains a Pareto inferior outcome. McKelvey and Ordeshook (1980) test the hypothesis in experimental data and conclude that the examples are not just theoretical curiosities, but can actually be observed in the laboratory. Unfortunately, there is no theoretical work that clearly identifies when we should expect such vote trading inefficiencies to arise in general, and when instead more positive results might emerge.2 To date there is no adequate model of decentralized trade in vote markets and so general questions about equilibrium allocations when voters can exchange votes with each other remain unanswered. Download free Competitive Equilibrium in Markets for Votes.pdf here
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