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AM’s reminders
Link to group schedule
Lecture on seminar day
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Today’s readings
RG ch. 6
Kruse & Stahlberg, 2013
Recommended readingsOn gerrymandering: http://www.washingtonpost.com/blogs/wonkblog/wp/2014/05/15/
americas-most-gerrymandered-congressional-districts/
http://freakonomics.com/2013/04/01/
how-gerrymandering-works/
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Political economics
Gruber: lack of transparency is a great political tool
1 Political decision making crucial
2 Economists know it best (always and undisputably)
Apply economic principles to decision making processesObamacareD&D: decide what to do with that shady guy at the tavern
Aggregating individual preferences into collective decisionRule =⇒ consequences
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Direct democracy
Also senate/parlament
Unanimity ruleLindahl prices
Majority ruleSimple majority (50%)Qualified majority (> 50%)
Choice 1 2 3
First A C BSecond B B CThird C A A
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Voting order and first paradoxes
Choice 1 2 3
First A C BSecond B B CThird C A A
Order in which votes are taken crucialAgenda manipulation
Voting paradox: Individuals’ preferences consistent,community’s are not
A > B > C > A
Cycling
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Voting order and first paradoxes
Choice 1 2 3
First A C BSecond B A CThird C B A
Order in which votes are taken crucialAgenda manipulation
Voting paradox: Individuals’ preferences consistent,community’s are not
A > B > C > A
Cycling
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Voting order and first paradoxes
Choice 1 2 3
First A C BSecond B A CThird C B A
Order in which votes are taken crucialAgenda manipulation
Voting paradox: Individuals’ preferences consistent,community’s are not
A > B > C > A
Cycling
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Graphing qualified preferences
U
A B C
1
2
3
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Voting paradoxes & median voter’s role
Issue: Non-single-peaked preferencesNot sufficient condition for ∃ of voting paradox (necessary)
Median voter theoremIf preferences single-peakedThen outcome reflects preferences of median voter
1 2 3 4 5
5 10 15 20 250 5 100 101 102
Moderate positions win =⇒ Politics
Median prefs. not necessarily maximize welfare function
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Logrolling
Log-roll: Helping neighbours with moving timber
Majority rule: does not allow to express how strongly onefeels about one option
Status-quo bias
Logrolling in politics: I scratch your back, you scratch mineTrading of votes to make of a given proposal pass
1 2 3 Totalwelfare
A 200 -50 -55 95B -40 150 -30 80C -120 -60 400 220
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Logrolling
Log-roll: Helping neighbours with moving timber
Majority rule: does not allow to express how strongly onefeels about one option
Status-quo bias
Logrolling in politics: I scratch your back, you scratch mineTrading of votes to make of a given proposal pass
1 2 3 Totalwelfare
A 200 -110 -105 -15B -40 150 -120 -10C -270 -140 400 -10
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Arrow’s impossibility theorem (I)
Voting rule: preference aggregator mechanismIndividual→ society
Simple majority may lead to inefficient outcomes/paradoxesPoint voting, exhaustive voting, plurality voting, Borda counts,Condorcet elections. . .
Also potentially flawed
Arrow’s theorem: Any rule is potentially flawed
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Arrow’s impossibility theorem (II)
Criteria1 Whatever individual preferences, rule can produce a
decision
2 Rule able to rank all possible outcomes
3 Responsive to individuals’ prefs.If for everyone A > B, then for society A > B
4 Consistent: if A ≥ B and B ≥ C, then A ≥ C
5 Independence of irrelevant alternativesSociety’s ranking of A and B 6⊥ on individuals’ ranking of C
6 No dictatorship
In general impossible for a rule to satisfy all 6 requirements
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Arrow’s impossibility theorem (II)
Criteria1 Whatever individual preferences, rule can produce a
decision
2 Rule able to rank all possible outcomes
3 Responsive to individuals’ prefs.If for everyone A > B, then for society A > B
4 Consistent: if A ≥ B and B ≥ C, then A ≥ C
5 Independence of irrelevant alternativesSociety’s ranking of A and B 6⊥ on individuals’ ranking of C
6 No dictatorship
In general impossible for a rule to satisfy all 6 requirements
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Implications
Is democracy doomed?Ethical validity: dropping one criteria =⇒ rule can beconstructed
Impossibility is a possibility.Rule cannot be guaranteed to be 100% bulletproof, but it canstill satisy all 6 criteria. E.g. identical preferences
A Brave New WorldFiscal federalism
Only some set of preferences (e.g. multipeaked) cause it to fail
Failure of criteria might be good for societyBuchanan: Inconsistencies =⇒ policy alternance (socialexperiments)
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Representative democracy
Decision costsIncreasing with the number of voters
Median voter theorem =⇒ decisions taken by median.Two-party systems tend to convergePerhaps median not the best?Falls apart if number of parties > 2
Rankings on multiple dimensionsAttitude depends on issue considered
Ideology & personality: more unobservables to the problem
Leaders: do they have an influence?Dahl et al. (WiP)Gerrymandering
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Gerrymandering
A B C
1 2 3 4 5 6 7 8 9Y Y N Y Y N Y N N
Y Y N
Representative = direct
A B C
1 2 4 3 5 6 7 8 9Y Y Y N Y N Y N N
Y N N
Representative 6= direct
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Gerrymandering
A B C
1 2 3 4 5 6 7 8 9Y Y N Y Y N Y N N
Y Y N
Representative = direct
A B C
1 2 4 3 5 6 7 8 9Y Y Y N Y N Y N N
Y N N
Representative 6= direct
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Gerrymanderin’ U.S.A.
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Gerrymanderin’ U.S.A.
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Gerrymanderin’ U.S.A.
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Other issues
Gerrymandering = vote swapYou swap when your preferred candidate has no chance to winin your district
Decision to voteIs it rational to vote? See Dubner & Levitt
Bureaucreats’ incentives
Rent-seeking: manipulate governemtn expenditure to obtainhigher than normal returns
Lobbyism, cartels (license emissions)
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Enforcing a cartel
P
QD
p∗ S
q∗
pc
qc
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Enforcing a cartel
P
QD
p∗ S
q∗
pc
qc
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Explaining government’s growth
Citizen preferences
Chance events + inertia: loss aversionStatus-quo biasAcquired privileges
Median voter theorem + income redistributionMedian income (inequality)Median age (pension system)
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For next time
RG, ch.6, ex 6
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