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• W64115425 abstract "The price system is widely regarded as an efficient way to use decentralized information, and some authors have argued that a market for vote would make voting more efficient by allowing intensities of preferences to be expressed. We develop a model of vote trading equilibrium to show that when individual preferences are correlated to some privately observed signals the existence of a market for votes can be socially harmful (thereby justifying secret ballots). Although the market is an efficient mechanism to aggregate private information about individual welfare, voting is an efficient mechanism to aggregate private information about collective welfare, and using both mechanisms at the same time when both types of decentralized information are to be aggregated can result into the destruction of the second type of information. This provides some justification for secret ballots and public subsidies to political campaigns. Erreur ! Argument de commutateur inconnu. Section 1 : Introduction. The market mechanism has been viewed for a long time as an efficient way to aggregate decentralized information: in the Arrow-Debreu model, individual agents only need to know their own preferences and to observe the equilibrium price system, and the resulting allocation cannot be (Pareto-)improved even if a single agent knew everybody's preferences at the same time. The voting mechanism constitutes another commonly used mechanism to allocate ressources, whose efficiency properties are usually questionned by economists and other social theorists. Unsurprisingly, several authors have thought of using the market mechanism to mitigate the presumed inefficiency of the voting mechanism: the basic argument is that a market for votes would allow the intensity of preferences to be expressed; that is, a majority may prefer x to y although everybody could be better off if y was implemented and the proponents of y could compensate the proponents of x by buying their votes. However all modern democraties have secret ballots, implying that vote trading contracts are in effect impossible to enforce, and many reasonnable people hold strong views against the idea of a market for votes. This paper attempts to explain why vote trading can indeed be socially The view that the problem of economic organization consists essentially of finding efficient mechanisms to use decentralized information, and in particular that the price system provides us with such a mechanism, dates back at least to Hayek(1945). E.g., Mostly in the public choice tradition, starting with Buchanan and Tullock(1962). Voting processes within parliaments often don't entail secret ballots, presumably because this is the only way voters can monitor their representative. In effect, this typically leads to massive vote-trading (although lobbying does not usually take the form of direct vote-trading contracts, the effects are similar; see section 4 for an application to such quasi-vote-trading Erreur ! Argument de commutateur inconnu. harmful in a world of decentralized information, and by doing so gives some new insights regarding the informational conditions under which voting and the market constitute efficient mechanisms. To understand our basic argument, it may be useful to recall that of Condorcet's Jury Theorem: assume all individuals (say, in a jury) share common values (if the state of nature s=0 they all prefer x to y, if s=1 they all prefer y to x), that they all receive a signal about s, and that the true signal is delivered with probability q>1/2; then nobody wants to be the dictator and everybody wants to delegate the decision-making power to the majority (so as to benefit from information pooling). Now consider the more realistic situation where there is at the same time some decentralized information of the kind described by Condorcet (some voters receive some signals which are of positive value to other voters as well) and some decentralized information about the individual intensity of preferences (different voters have different intensity of preferences). Then the usual benefits of decentralized vote trading (in terms of using efficientely private information about individual preferences by allowing high-valuation agents to vote more by compensating low-valuation agents) can be overwhelmed by the destruction of socially useful signals: typically, some agents can receive a socially-useful signal but still be so uncertain that selling seems privately profitable while some other agents are sufficientely certain about their own preferences that they are ready to buy; in that case a transaction will take place although all uncertain voters (and society as a whole) may be better off if everybody was forced to vote. The key deficiency of the price system is its imperfect informativeness: the same equilibrium processes). Surprisingly enough, this transparent result does not seem to be as well known as Condorcet's majority cycles story, although both are extremely complementary: voting is an efficient mechanism to aggregate information in a common-values world, but results quickly into troubles (majority cycles) if it is used to aggregate conflicting interests. Erreur ! Argument de commutateur inconnu. price for votes prevails for completely different distribution of signals, so that uncertain voters don't get to learn what they should be fighting for. Therefore it may be socially desirable to forbid vote trading altogether. There exists very few analysis of the efficiency properties of vote trading in decentralized equilibrium. Most of the literature deals with non-equilibirum behavior, pointing out various kinds of equilibrium non-existence, in general for majority-cycles and related reasons or because it is assumed that the distribution of individual preferences is known with certainty (so that the probabilities of being decisive are certain, which implies that there will always be an excess supply of votes at any positive price and an excess demand at price 0; see Philipson and Snyder(1992) and subsequent references). The basic point that a market for votes cannot operate like a normal market has been made several times, but it is important to realize that the fact a vote-trading contract always involves external effects on othe r agents does not imply per se that allowing vote trading is socially harmful; what this implies is only that the equilibirum will not in general first-best efficient; we explain in section 3 why vote trading, by transferring voting rights to highvaluation agents and compensating low-valuation agents, is very likely to generate positive (though not maximal) Pareto-improvements as long as individual valuations are certain. One needs to invoke uncertain preferences and privately-observed, socially-useful signals to make a robust case against vote trading: even if market power could be regulated there would still exist good reasons for keeping the market out of politics. See in particular the free-riding argument of Grossman and Hart(1980) and the subsequent literature. For example by supporting the formation of large coalitions of voters with small individual stakes. Erreur ! Argument de commutateur inconnu. Our point is also related to Hirshman(1971)'s argument about the limited compatibility between and exit: Hirshman argues that the introduction of exit (the competitive mechanism) into a situation where was the primary regulatory mechanism can be socially harmful since it may induce agents who can most effectively to exit. If one interprets as a direct information-aggregation mechanism through communication (of which voting is a simple example), then we also suggest that the private regulation of individual weights within a voice club can be socially harmful. The rest of the paper is organized as follows: section 2 defines a competitive, rationalexpectations equilibrium concept for vote trading; section 3 applies it to show why competitive vote trading can result into substantial destruction of socially useful information; section 4 applies these same ideas to the financing of political campaigns; section 5 gives concluding comments. Section 2 : A Model of Equilibrium Vote Trading. A finite set of agents I=(1;...;n) has to choose between two possible collective decisions x and y . The preferences of agent i are represented by Ui = Ui(x,s) + ti if x is implemented The main difference with Hirshman's argument, apart from the formal modelling we offer, is that in our model there are prices for votes that could in principle undo this ineficiency by transmitting information (this strenghthens the argument)." @default.
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• W64115425 date "2002-01-01" @default.
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• W64115425 title "Information Aggregation Through Voting and Vote-Trading" @default.
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