Chapter 22: Political Choices

11© 2014 by McGraw-Hill Education Chapter 22 Political Choices 2© 2014 by McGraw-Hill Education • What the predictions and assumptions of the median-voter theorem are. • What the characteristics of ideal versus real voting systems are. • How to explain the idea of a rational voter and rational ignorance. • Why policies that provide concentrated benefits to a few while imposing diffuse costs on the majority persist. • Why corruption and rent-seeking can persist in a democratic system. What will you learn in this chapter? 3© 2014 by McGraw-Hill Education • Electoral political economic models assume voters: – Are rational and do what is in their best interest. – Have preferences regarding policy. – Have full information about candidates. – Vote for the candidate whose policy platform most nearly resembles their preferences. • Once candidates are elected into office, they simply implement the platforms on which they were elected. • In this way, rational voters directly determine the shape of public policy. The economics of elections 24© 2014 by McGraw-Hill Education • Elections are often modeled based on the median-voter theorem. – Politicians maximize their votes by taking the policy position preferred by the median voter. • The conditions to assure this outcome are: – Only two candidates. – People vote for the candidate whose position is closest to their own. – Single, one-dimensional policy question. – Candidate wins by majority vote. The economics of elections 5© 2014 by McGraw-Hill Education • To illustrate the theorem, consider an election with seven voters with the following preferred spending levels. • Candidate A advocates relatively low spending, while Candidate B advocates very high spending. The economics of elections Low spending High spending (wins 5 votes) Candidate A (wins 2 votes) Candidate B • Voters vote for the candidate that has a spending level policy closest to their preferred spending level. • Candidate A wins 5 votes, while Candidate B wins 2 votes. 6© 2014 by McGraw-Hill Education Candidate B realizes that moving his spending policy towards the middle will win more votes. The economics of elections (wins 3 votes) (wins 4 votes) Candidate A Candidate B Low spending High spending • Candidate B now wins 4 votes. • Candidate A wins 3 votes. 37© 2014 by McGraw-Hill Education Candidate A also realizes that moving his spending policy towards the middle will win more votes. The economics of elections • Both have similar spending policies. • The candidate with the spending policy closet to the median voter wins the election. • Thus, the median voter’s vote is the decisive vote. (wins 4 votes) (wins 3 votes) Candidate B Low spending High spending Candidate A Median Voter 8© 2014 by McGraw-Hill Education • There are four conditions for an ideal voting system: – Unanimity: If everyone in the group prefers option X to option Y, then X beats Y. – No dictator: There is no person who has the power to single-handedly enact his or her own preferences. – Transitivity: If option X beats Y, and Y beats Z, then transitivity says that X also beats Z. – Independence of irrelevant alternatives: If a group is voting on option X versus option Y, this decision should not depend on any information or preference about another unconnected option, Z. The elusive perfect voting system 9© 2014 by McGraw-Hill Education For each of the following, identify which criterion for an ideal voting system is most likely violated: • Voters would rather spend on schools than parks, and would rather spend on parks than alternative energy, yet alternative energy wins over schools. • Someone has the power to put all funds into national parks, even if most would rather spend the money on schools. • The option of spending on alternative energy affects whether voters prefer spending on schools versus parks. • Every voter would rather spend more on education than on national parks, yet national parks spending wins. Active Learning: Ideal voting system 410© 2014 by McGraw-Hill Education • In most elections the voting system is first-past- the-post, or plurality voting: – All candidates go up against each other at once. – Each voter can choose one of the candidates. – The candidate who receives the most votes wins. • The merit of this voting system is simplicity. • It violates the independence of irrelevant alternatives criterion, also called the third-party problem. • Instead of the median voter being decisive, winning depends on whether an additional third party candidate is on the ballot. The elusive perfect voting system 11© 2014 by McGraw-Hill Education Consider the 2000 presidential election between George W. Bush, Al Gore, and third party candidate Ralph Nader. The elusive perfect voting system Gore wins Bush wins Percent of voters 1. Gore 2. Bush 51% 1. Bush 2. Gore 49% Preference 2000 election with two parties A third party changes the election outcome 3% 48% 49% Preference 1.Nader 2.Gore 3.Bush 1.Gore 2.Nader 3.Bush 1.Bush 2.Gore 3.Nader Percent of voters • If only two main candidates: – Gore is the first preference for a larger share of voters. – Gore wins. • If Nader also is a candidate: – Some who previously voted for Gore switch their votes to Nader. – Preferences between Gore and Bush remain. – Bush now is the first preference of the largest share of voters, and wins. 12© 2014 by McGraw-Hill Education • To avoid the third-party problem, one suggestion would be to use pair-wise majority voting. – Election options are taken in pairs, and the majority vote wins. – When all options have been put to a “head-to-head” match between a pair of opponents, one might expect the most popular option to win. • This system fails another criteria, transitivity, giving rise to the Condorcet paradox. – Preferences of each individual member of a group are transitive, but the collective preferences of the group are not. The elusive perfect voting system 513© 2014 by McGraw-Hill Education • Consider a simple vote of three city council members to construct either a new jail, a new city hall, or a new library. • Each council member has ordered preferences. The elusive perfect voting system Preferences of 3 city council members Jail City Hall Library>> City Hall Library Jail Library City HallJail >> >> Member 1: Member 2: Member 3: • Member 1 prefers the jail, followed by the city hall, and then the library. • Member 2 prefers the city hall, followed by the library, and then the jail. • Member 3 prefers the library, followed by the jail, and then the city hall. • If the council members took a simple vote, the result would be a three-way tie. 14© 2014 by McGraw-Hill Education Library 2 votes City Hall 2 votes City Hall Libraryvs. Election order #2 Jail 2 votes • Suppose the council decides to use pair-wise majority voting. • The ordering of the pairwise elections determines which project is funded. The elusive perfect voting system Libraryvs. Jail City Hallvs. Election order #1 LibraryWinner = 2 votes Jailvs. Winner = Jail 2 votes City Hallvs. Winner = City Hall 2 votes JailLibrary vs. Election order #3 • When the principle of transitivity is violated, the power to set the agenda is sometimes crucial in shaping the final outcomes. • The person who decides on the order in which issues are brought to a vote for the city council wields considerable power. 15© 2014 by McGraw-Hill Education • There are many more possible voting systems. – Variations on first-past-the-post, such as holding a run-off between the top two candidates. – “Instant-runoff” systems, in which voters rank all candidates by order of preference. – “Approval voting,” in which voters can vote for multiple candidates. – The Borda count, commonly used to rank sports teams in national polls. • Arrow’s impossibility theorem states that no voting system can aggregate the preferences of voters over three or more options while meeting all of the criteria for an ideal voting system. – No voting process is perfect. The elusive perfect voting system 616© 2014 by McGraw-Hill Education • All voting systems have assumed voters are rational and fully informed. – Elections can be swayed by more than rational policy considerations of well-informed voters. • There are costs associated with being informed. – Some voters may find the opportunity cost of gathering information outweighs the benefits and choose to remain ignorant, known as rational ignorance. • Even though the benefit of one vote is quite small, people still vote. – The likelihood of casting a pivotal vote. – Utility from participating in a civic event. – Altruism to contribute to the democratic process. – Social pressure to do one’s duty. Political participation and the myth of the “rational voter” 17© 2014 by McGraw-Hill Education • Political advocacy and engagement suffer from the free-rider problem, similar to public goods. – Best ideas might not win if people fail to lend support. – The collective-action problem may occur if individuals need to act collectively to reach solutions that will make everyone better off, and fail to do so. • It is costly to engage in collective action. – Large groups have relatively more diffuse costs and benefits than smaller groups. – The concentrated benefits of small groups compared to the diffuse costs of large groups allow for policies such as farm subsidies to persist. The economics of policy-making 18© 2014 by McGraw-Hill Education • Government create waste and inefficiency by contributing to rent-seeking, the act of pursuing privileges that increase the surplus of a person or group without increasing total surplus. – Often involves lobbying. – Legal, but wasteful. – At its extreme, corruption occurs, which is illegal. – Bureaucratic capture may occur when government positions are filled with people who have close ties to the group they are supposed to regulate. • It is costly to acquire information about what public officials are doing and what they should be doing. – Political opponents have incentives, but are not trusted. – Media has mixed incentives, like a desire to keep sources. Corruption and rent-seeking 719© 2014 by McGraw-Hill Education Decide whether rent-seeking, corruption, or bureaucratic capture applies. 1. A government official is bribed in exchange for a contract. 2. Senior-citizens lobby the city to spend more on public transit for the elderly. 3. The President appoints the former head of J.P. Morgan to the SEC. 4. The head of the teachers’ union offers support to a candidate in exchange for her promise to spend more on teacher salaries. Active Learning: Rent-seeking, corruption, and bureaucratic capture 20© 2014 by McGraw-Hill Education • The rules that make up political structures can have a big effect on outcomes. • There are three that have a particularly big impact on how voters’ preferences are translated into policy choices. 1. Number of political parties. • Two party systems use first-past-the-post voting. • Proportional representation system assigns percentages of legislature seats proportional to the distribution of the nationwide votes. How political structure affects outcomes 21© 2014 by McGraw-Hill Education 2. Term limits. – Prevent officials from holding office for longer than a certain amount of time. – May discourage corruption by ensuring that one person isn’t allowed to hold onto power for too long. – The opposite might be true under certain circumstances. 3. Increased enfranchisement. – Who has the right to vote can change the composition of voters and the viability of various policies. – Even when the right to vote is universal, poll taxes, literacy requirements, or other such obstacles can keep the poor or uneducated from being able to vote. How political structure affects outcomes 822© 2014 by McGraw-Hill Education • The median-voter theorem suggests that politicians maximize their votes by taking the policy position preferred by the median voter. • It assumes: – There is a single, one-dimensional policy question. – Voters always vote for the candidate whose position is closest to their own. – There are only two candidates. – The winner is determined by majority vote. Summary 23© 2014 by McGraw-Hill Education • Arrow’s impossibility theorem states that no system can aggregate the preferences of voters among three or more discrete options while satisfying the four basic criteria for an ideal voting system: – Unanimity. – Transitivity. – Irrelevance of independent alternatives. – No dictators. • Uninformed voting is an example of rational ignorance, when the costs of gathering information outweigh the benefits. Summary 24© 2014 by McGraw-Hill Education • In collective-action problems, a group of people stands to gain from an action that it is not rational for any of the group members to undertake individually. – The theory that groups experiencing concentrated benefits tend to win over those with diffuse costs is used to explain the persistence of policies that don’t appear to be in the interest of the majority of voters. • Rent-seeking is the act of pursuing arrangements that increase one’s own surplus without increasing total surplus. • Corruption is when public officials use the powers of their position to achieve personal gains. Summary