WHY ARE THERE DEMOCRACIES? A PRINCIPAL AGENT ANSWER*

Many organizations operate by majority rule. Why? I consider elections as ways to aggregate information rather than ways to reconcile preferences. This is a principal-agent problem with many principals. Only mechanisms that minimize the weighted sum of type 1 errors (neglecting a deserving agent) and type 2 errors (rewarding an undeserving agent) can escape manipulation. Majority rule uniquely minimizes the sum of errors. Thus majority rule is a very good way to aggregate information.