Redistributive policies with heterogeneous social preferences of voters

There is growing evidence on the roles of fairness and other-regarding preferences as fundamental human motives. Call voters with fair preferences, as in Fehr and Schmidt (1999), fair-voters. By contrast, traditional political economy models are based on selfish-voters who derive utility solely from “own” payoff. In a general equilibrium model with endogenous labor supply, a mixture of fair and selfish voters choose optimal policy through majority voting. First, we show that majority voting produces a unique winner in pairwise contests over feasible policies (the Condorcet winner). Second, we show that a preference for greater fairness leads to greater redistribution. An increase in the number of fair voters can also lead to greater redistribution. Third, we show that in economies where the majority are selfish-voters, the decisive policy could be chosen by fair-voters, and vice versa. Fourth, while choosing labor supply, even fair voters behave exactly like selfish voters. We show how this apparently inconsistent behavior in different domains (voting and labor supply) can be rationalized within the model.     

Counterexamples on the Superiority of Approval versus Plurality

We present a simple voting environment with three candidates where the Condorcet winner exists. Under plurality rule, the derived game has a stable set where such a candidate is elected with probability one. However, no stable set of the approval game elects the Condorcet winner with positive probability. We also analyze the robustness of such an example to changes in the number of voters and their preferences. To conclude, we present a generic four‐candidate voting environment with the same properties.     

Politically Determined Income Inequality and the Provision of Public Goods

Political processes may bring about Pareto improvements by increasing income inequality in a society that produces a public good by voluntary contributions. Proportional taxation funds a “governing agent.” The most endowed agent is the Condorcet winner for governing agent. When the tax rate can also be chosen by a vote, the ideal point of the agent with median initial endowment is the Condorcet winner under Cobb–Douglas utility. If Pareto improvements are possible, this ideal point corresponds to Pareto improvement. Pareto improvement may also be possible, even when a Leviathan set taxes, if there is deadweight loss from taxation. Pareto improvements are indeed always possible in “large” societies. On the other hand, no improvements may be possible if the initial distribution of wealth is very unequal in a “small” society, and Condorcet winners may not exist for other utility functions.     

Electoral Thresholds as Coordination Devices

In this paper, we study one‐person–one‐vote parliamentary elections where voters care both about the winner of elections and about the composition of the parliament. Parties enter the parliament if and only if their vote share exceeds some predetermined threshold. We show that equilibria generically exist in which all parties obtain a non‐degenerate vote‐share and, perhaps more importantly, we show that the size of the electoral threshold acts as a coordination device, which crucially affects the win prospects of the Condorcet winner party. In particular, we argue that the win prospects of the Condorcet winner party decrease with the size of the entry threshold.     

Dominance solvable approval voting games

This work provides necessary and sufficient conditions for the dominance solvability of approval voting games. Our conditions are very simple since they depend just on the number of possible winners when voters play weakly undominated strategies. If there are at most two possible winners, then the game is dominance‐solvable and the outcome coincides with the Condorcet winner. If every candidate is a possible winner, the game is not dominance‐solvable. If none of the previous conditions holds, then the game need not be dominance‐solvable, and the outcome need not coincide with the Condorcet winner.     

Decisiveness of contributors’ perceptions in elections

We consider a model of two-candidate elections with a one-dimensional policy space. Spending on campaign advertisements can directly influence voters’ preferences, and contributors give the money for campaign spending in exchange for promised services if the candidate wins. We find that the winner of the election depends crucially on the contributors’ beliefs about who is likely to win and the contribution market tends toward nonsymmetric equilibria in which one of the two candidates has no chance of winning. If the voters are only weakly influenced by advertising or if permissible campaign spending is small, then the candidates choose policies close to the median voter’s ideal point, but the contributors still determine the winner. Uncertainty about the Condorcet winning point (or its nonexistence) can change these results and generate equilibria in which both candidates have substantial probabilities of winning.     

How many voters are needed for paradoxes?

Summary. This paper presents a general procedure for finding profiles with the minimum number of voters required for many important paradoxes. Borda's and Condorcet's classic examples are revisited as well as generalizations. Using Saari's procedure line, we obtain an upper bound for the minimum number of voters needed for a profile for which the Condorcet winner is not strictly top ranked for all weighted positional procedures. Also we give a simple upper bound on the minimum number of voters needed for a set of prescribed voting outcomes. In contrast to situations wherein small numbers of voters are needed, we consider paradoxes requiring arbitrarily large numbers of voters as well as large numbers of alternatives. Finally we indicate connections with statistical rank based tests. Received: April 18, 2001; revised version: May 25, 2001     

Redistribution under general decision rules

We study the political economy of redistribution over a broad class of decision rules. We suggest a simple and elegant procedure to select a robust equilibrium from the multiplicity in the core. Equilibrium policy depends on the full income profile, and, importantly, the preferences of two decisive voters. We show that the effect of increasing inequality depends on the decision rule and the shape of the income distribution; redistribution will increase if both decisive voters are “relatively poor,” and decrease if at least one is sufficiently “rich.” Additionally, redistribution decreases as the polity adopts increasingly stringent super-majority rules.     

Design of reforms with time‐inconsistent voters

Widespread agreement that a political reform is necessary is no guarantee that it is actually undertaken in a timely manner. There is often a delay before action is taken and reform packages that would be most efficient to implement all at once are often done only gradually. We propose a theoretical model explaining this behavior and show that when voters have present‐biased, time‐inconsistent preferences, gradualism can arise in equilibrium and be welfare‐enhancing. This is because without the possibility for gradualism, time‐inconsistent voters would delay implementing the reform even more. Using a citizen candidate model, we allow the agenda setter, who decides which reform schedule to put to vote, to be endogenously determined. We show that voters who are aware of their own time inconsistency can use the election of the agenda setter as a commitment device and appoint an agent who is more patient than the median voter in order to avoid full procrastination and to achieve efficiency‐maximizing gradualism.     

Why is free education so popular? A political economy explanation

This paper analyzes the political support for different funding regimes of education in a one‐person, one‐vote democracy. We focus the analysis on four systems that have had a preponderant presence in the political debate on education: a private system, a public system that delivers the same resources to each student (universal‐free education), a public system that intends to equalize results, and a public system that aims to maximize the output of the economy. We show that a system of universal free education is the Condorcet winner. The level of income inequality and the degree to which income distribution is skewed to the right are key factors behind this conclusion. We also show that the voting outcome of public versus private funding for education depends crucially on the type of public funding under consideration.     

Approval voting with endogenous candidates

We present a formal model of political competition under approval voting which allows for endogenous candidate entry. Our analysis yields a number of novel insights. First, we develop a notion of sincere voting behavior under approval voting, called relative sincerity. We then show that the relatively sincere voting behavior is consistent with the strategic calculus of voting. Second, we show that in a one-dimensional model with distance preferences, equilibria in relatively sincere strategies and without spoiler candidates always generate outcomes close to the median voter. Moreover, approval voting satisfies Duverger's Law in the sense that there are at most two winning positions! Finally, we extend our analysis to arbitrary policy spaces. In the general setting, approval voting is shown to be susceptible to the same kinds of problems as the plurality rule, such as the possibility of non-majoritarian outcomes, failure to elect the Condorcet winner and existence of spoiler candidates.     

Global capital markets,housing prices,and partisan fiscal policies

In recent years, global imbalances have channeled the excess savings of surplus countries toward the real estate markets of deficit countries. By consequence, the deficit countries that attracted lots of foreign capital experienced large run‐ups in house prices, whereas most surplus countries that exported capital exhibited flat or slow house price growth. We first use new house price data and a novel instrumental variable design to show the causal relationship between housing prices and capital inflows, particularly through debt bonanzas. We then argue that international capital flows affect the fiscal policy preferences of both voters and political parties by way of their impact on housing prices. Where capital inflows are large and housing prices are rising, we expect voters to respond by demanding both lower taxes and less publicly‐provided social insurance because rising house prices allow homeowners to self‐insure against income loss. In contrast, declining house prices produce greater demands for social insurance, particularly among those most exposed to housing market risk. We present evidence from two cross‐national surveys that supports these claims, as well as a “before and after” analysis of the housing crash in Eastern Europe. We also show that the connection between house prices and social policy also manifests itself in government spending outcomes, mediated by partisan control.     

POSITIVELY RESPONSIVE COLLECTIVE CHOICE RULES AND MAJORITY RULE: A GENERALIZATION OF MAY'S THEOREM TO MANY ALTERNATIVES

May's theorem shows that if the set of alternatives contains two members, an anonymous and neutral collective choice rule is positively responsive if and only if it is majority rule. We show that if the set of alternatives contains three or more alternatives only the rule that assigns to every problem its strict Condorcet winner satisfies the three conditions plus Nash's version of “independence of irrelevant alternatives” for the domain of problems that have strict Condorcet winners. We show also that no rule satisfies the four conditions for domains that are more than slightly larger.     

Condorcet Jury Theorem or Rational Ignorance

We analyze a symmetric model of an election in which voters are uncertain about which of two alternatives is desirable for them. Each voter must incur some cost to acquire information about the alternatives. We show that by focusing on unbiased voting strategies, general symmetric signal structures can be degenerated to a two‐signal model. In addition, we show that for any sequence of unbiased voting equilibria, if the second‐order derivative of the information cost function at no information is zero, then the probability of electing the desirable alternative converges to one, that is, the Condorcet Jury Theorem is valid. Otherwise, this probability converges to some value less than one; that is, the “rational ignorance” hypothesis is valid.     

MEDIA ADVERTISING AND BALLOT INITIATIVES: THE CASE OF ANIMAL WELFARE REGULATION

Spending on political advertising increases with every election cycle, not only for congressional or presidential candidates, but also for state‐level ballot initiatives. There is little research in marketing, however, on the effectiveness of political advertising at this level. In this study, we conduct an experimental analysis of advertisements used during the 2008 campaign to mandate new animal welfare standards in California (Proposition 2). Using subjects' willingness‐to‐pay for cage‐free eggs as a proxy for their likely voting behavior, we investigate whether advertising provides real information to likely voters, and thus sharpens their existing attitudes toward the issue, or whether advertising can indeed change preferences. We find that advertising in support of Proposition 2 was more effective in raising subjects' willingness‐to‐pay for cage‐free eggs than ads in opposition were in reducing it, but we also find that ads in support of the measure reduce the dispersion of preferences and thus polarize attitudes toward the initiative. More generally, political ads are found to contain considerably more “hype” than “real information” in the sense of Johnson and Myatt [Johnson, J. P., and D. P. Myatt. “On the Simple Economics of Advertising, Marketing and Product Design.” American Economic Review, 96, 2006, 756–84]. (JEL D12, D72, K32, L66, M37)     

Testing Social Preferences for an Economic “Bad”: An Artefactual Field Experiment*

We test for social preferences over a commodity in an artefactual field experiment using the random price voting mechanism. Subjects are university staff members, and the commodity is water “contaminated” by a sterilized cockroach. Our results suggest that social preferences exist with respect to commodities and “bads”, supporting a more general utility framework for social preferences. Our empirical test allows for the coexistence of three social‐preference models; our results support the models of Fehr and Schmidt (1999) and Charness and Rabin (2002), but not the model of Bolton and Ockenfels (2000). Also, we find that incorporating social preferences improves the efficiency of majority‐rules voting.     

Manipulation through political endorsements

We study elections with three candidates under plurality voting. A candidate is a Condorcet loser if the majority of the voters place that candidate at the bottom of their preference rankings. We first show that a Condorcet loser might win the election in a three-way race. Next we introduce to the model an endorser who has private information about the true probability distribution of the preferences of the voters. Observable endorsements facilitate coordination among voters who may otherwise split their votes and lead to the victory of the Condorcet loser. When the endorser has an ideological bias towards one of the candidates, the coordination impact of endorsements remains unaltered, moreover the endorser successfully manipulates the outcome of the election in favor of his bias, even if his ideological bias is known by the voters. The results are true for any endorsement cost and any magnitude of bias as long as the electorate is large enough.     

A Solution Concept for Majority Rule in Dynamic Settings

We define and explore the notion of a Dynamic Condorcet Winner (DCW), which extends the notion of a Condorcet winner to dynamic settings. We show that, for every DCW, every member of a large class of dynamic majoritarian games has an equivalent equilibrium, and that other equilibria are not similarly portable across this class of games. Existence of DCWs is guaranteed when members of the community are sufficiently patient. We characterize sustainable and unsustainable outcomes, study the effects of changes in the discount factor, investigate efficiency properties, and explore the potential for achieving renegotiation-proof outcomes. We apply this solution concept to a standard one-dimensional choice problem wherein agents have single-peaked preferences, as well as to one involving the division of a fixed aggregate pay-off.     

Fairness in tax compliance: A political competition model

This paper analyzes the political economy of income redistribution when voters are concerned about fairness in tax compliance. We consider a two‐stage model where there is a two‐party competition over the tax rate and over the intensity of the tax enforcement policy in the first stage, and voters decide about their level of tax compliance in the second stage. We find that if the concern about fairness in tax compliance is high enough, a liberal middle‐income majority of voters may block any income redistribution policy. Alternatively, we find an equilibrium in which the preferences of the median voter are ignored in favor of a coalition formed by a group of relatively poor voters and the richest voters. In this equilibrium income redistribution prevails with no tax enforcement.     

A recursion relation for the probability of the paradox of voting

For alternatives x_i, i = 1,…, m, giving rise to m! linear preference orderings of which one is selected independently by each of N voters, a recursion relation is developed which expresses the probability that x_i is the Condorcet winner when there are N voters in terms of the probability of this event when there are N ? 1 voters. Hence the probabilities of the paradox of voting when N is odd, and of Condorcet indecision when N is even may be obtained. The relationship holds for any set of probabilities, or culture, governing the selection of the preference orderings by the voters.