XVI. PROBLEMS WITH DEMOCRATIC DECISION MAKINGTHE
INVISIBLE FOOT IS STILL KICKING US
Many economists once suggested that any problem markets have in
achieving Pareto Optimality should be addressed by introducing
governmental control. Now economists understand that the
problems markets face, public goods, externalities, transactions
costs, and monopolies, are also faced by democratic institutions.
The collective decision that must be made is which set of institutions,
democratic institutions, market institutions, or some combination,
work better in particular types of cases. Let us now examine
how these problems also affect democratic institutions.
A. The Public Goods Problem with Democratic Processes
The most fundamental act in democracy is the vote, citizen participation. The act of voting requires citizen effort to vote and, we hope, citizen effort to become informed so as to make an informed decision. It is in these acts and other forms of general citizen participation that we see the public goods problem. To understand this, let us consider the decision process for voting and for seeking information about issues and candidates, but the incentives are similar for any type of political participation.
To vote, the rational person must find that the benefits to voting outweigh the costs of voting, otherwise the person would abstain. There are two types of benefits of voting to consider: the benefits from changing the outcome of the election and the benefits of voting out of citizen duty and peer pressure. The costs of voting are basically the opportunity costs of one's time to get to the polls and to pull the preferred lever.
Ordinarily, a person can only expect to get the benefits from changing the outcome when that person's actions have an effect on the outcome. In elections, the only case where there would be a change in the outcome from one's own actions are when one's vote breaks what would have been a tie or changes one's candidate's position from losing by one vote to a tie. In most elections, the probability of making or breaking a tie is extremely small. [Probabilities are NEVER greater than one or less than zero; a probability of one means is associated with events of absolute certainty, while probabilities of zero are associated with impossible events. In an election with 10,000 people expected to vote, the probability is about 1/10000, but often even smaller.]
In making decisions where outcomes occur that are less than certain (probability less than one), the decision maker tends to weigh the benefits or costs of a particular action by the probability that one will receive those benefits or bear those costs. With the lottery, for example, people weigh the outcome of the benefits of the prize, say onemillion dollars today, by the chance of winning, say one chance out of seven million, to get an EXPECTED BENEFIT of about fourteen cents. This expected benefit minus the certain cost of a dollar ticket price gives us an expected net benefit of negative eightysix cents. The excitement of the gamble, the entertainment value of the bet, and the value of contributing to the state government must be greater than eightysix cents for a person to buy a lottery ticket.
In the decision to vote the benefits of changing the outcome,
B, weighed by the probability, P, that one's actions will alter
the election outcome plus the benefits of voting out of citizen
duty, D, minus the costs of casting one's vote, C, must be positive
to vote. In equation form we have
8) V = P*B + D - C.
The decision rule is to vote if V > 0 and abstain if V < 0. In most elections, people vote primarily out of a sense of civic duty, not because they think that they will alter the outcome, as the probability, P, is so minute. For democracy to work, people must have a sense of civic duty.
Since an individual's vote has a small expected effect on the outcome, the incentive to gather information about the alternatives is small. James Gwartney and Richard Stroup (1992, Economics: Private and Public Choice, 6th. ed. New York: Harcourt Brace pp. 9495) compare the decision of the voter to gather information to make a better choice in the voting booth with the decision of the farmer to gain an understanding of the forces that affect the weather. Since there is little that the farmer can do about the weather, further understanding and information can not be translated into better farm profitshard freezes and droughts will still destroy his crops and will come despite the farmer's knowledge of why they come. An election outcome will be the same despite the potential voter's understanding of the issues.
Another way to understand this lack of incentive to learn about political matters, what some economists have called RATIONAL IGNORANCE, is to compare a political decision to vote with rather private decision of which car to buy. Since one will be "stuck" for some time with whatever decision they make with regards to the car, the car buyer generally goes to length to research the advantages and disadvantages of their various alternatives largely because the car buyer's choice is decisive, it does not depend on choices made by others. Since the voter's choice is not decisive, more information about the choices is of little value.
Put another way, gaining better information about the electoral choices is a public good. The benefits of a better choice made by one voter are shared by the entire group, but the costs of acquiring the information are borne by the one seeking the information.
All of this boils down to some observations we can make about the types of things that get done through the democratic process and things with which the democratic process has difficulty. We must first see that if the costs to the individual voter of some proposal outweigh the benefits of that proposal, the benefits of opposing the proposal are positve. If the benefits to the individual are higher than the costs to the individual are higher, the benefits of supporting the proposal are positive.
If the benefits of a proposal are rather evenly spread out over the citizenry as is the case with public goods (and so are mostly small per person), no individual has much of an incentive to participate in support of the proposal and the proposal is unlikely to get passed. If the benefits are concentrated among a few and so are higher for those few (like a private good), these few have a greater incentive to participate, and the proposal is more likely to get passed. If the costs of the proposal are spread out, there is little incentive for those who are to bear the costs to oppose the proposal, but when the costs are upon the shoulders of a few, the incentives to fight the proposal are strong. Further, if a proposal and takes from some to give to others, and this is clearly understood by the voters that this is all that the proposal does, it is difficult for the proposal to pass. However, if those who receive the benefits clearly see those benefits while those who bear the costs of the proposal do not clearly understand that they bear the costs, the proposal will have an easier time passing than if the costs are more clearly perceived by the bearers of the costs than the beneficiaries preceive the benefits they are to receive.
The upshot of all of this is that proposals that benefit a wide
group, public goods, are difficult to get passed because no one
has an incentive to push for them. The benefits to get proposals
that benefit a narrow group (closer to a private good) are easier
to get passed. Democratic processes have a difficult time
financing public goods, while private goods are financed by through
democratic processes.
B. The Externality Problem with Democratic Processes
Since choices made under democratic processes involve the choices
of some imposing costs and granting benefits upon others, it is
easy to see how democratic processes suffer from this flaw of
markets.
C. The Transactions Cost Problem with Democratic Processes
Making decisions in a democracy involves the same transactions
costs as we see in markets: the costs of information (we
have seen that this is particularly problematic) with legislatures
holding hearings, paying for studies, etc.; and the costs of reaching
a decision, as legislative debate and administrative decision
making are both very costly.
D. The Monopoly Problem with Democratic Processes
The monopoly problem is very clear. There is little competition
with the government on the use of force. Additionally, usually
only one administrative bureau has the authority and responsibility
in a particular area of concern. This means that when the
bureau goes to the legislature for funding, there is no competitor
offering competing views on how a particular task can be accomplished
and at what costs. This lack of choice can lead to overspending
to get a particular task accomplished.
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