On Wed, 28 Aug 2002, Fred Foldvary wrote: > There will be individual costs that excede benefits, and benefits that excede > costs, but I don't see why the total social cost would differ from the total > private costs. The only voters that impose an externality are those who > change the outcome, and they do compensate society.
It's quite simple. Specify that I get $5 worth of expressive benefits from voting $5,000,000 for project A rather than project B. Specify also that I will not be decisive, and that there are many people like me, each of whom would not be decisive. Specify also that if B is actually chosen, I accrue net benefits of, say, $100,000. If I am not decisive, I will not bid $100,000 for B, because it's quite unlikely that I'll change the outcome. Instead, I'll vote for the sure bet of expressive benefits coming with a vote for A. The demand revealing process will then provide a strongly biased picture of net benefits. Inefficient projects will be chosen whenever expressive preferences diverge from instrumental preferences. Nobody compensates society under the demand revealing process. Check Tideman/Tullock 1976. All revenues collected must be wasted. Tullock has confirmed this in conversation. The money collected can't just be burned, which would confer a benefit upon all other holders of cash. The money must be turned into real resources which would be destroyed. "It may seem that a person who sustains a large loss when his preference is not followed deserves compensation, but this cannot be given without motivating an excessive statement of differential value. ... In regard to the uncompensated losses that are produced, the demand-revealing process is similar to majority rule." > Why is this regarded as a social waste, if it provides utility to the voters, > even if that utility is from the expression? The total value stated by the > voters excedes the total cost; where is the waste? We're talking past each other. The amount of expressive benefit enjoyed by the expressive voter does count as utility. But, we can expect that the expressive benefits will be less than $1 for each dollar bid for one project rather than another. If I get $5 in benefits if I bid $5,000,000 for project A over project B, and if I won't be decisive, then I will bid $5,000,000 for A. I'm bidding a number IN EXCESS of the benefits I actually accrue. In the aggregate, many voters behaving this way impose social costs. > If someone states a value of $100 for a public good, why would the utility be > less than than $100 spent for a private good? Because it's very very cheap for me to state a value of $100 for a public good if I'll not be decisive and if I won't pay the full cost of the $100. If I get even an infinitessimally small expressive benefit from saying that I value the public good at $100, then I'll do it regardless of how much the public good is worth to me. > > Let's > > say that each person gets $5 worth of expressive utility from voting for > > statue construction. The average cost to each voter if the statue is > > constructed is $50. And, each voter gets $3 worth of direct utility from > > looking at the constructed statue. > > Then the total utility per voter is $8, while the cost is $50, and the statue > is not obtained. With demand revelation, the statue is only bought if the > total stated value is greater than the total cost. Please tell me which version of the demand revealing process you're referring to. I'm looking at Tideman/Tullock, 1976. Nowhere does it specify that any cost/benefit analysis is undertaken. We're simply adding up the stated dollar valuation for project A (building the statue) versus the stated dollar valuation for project B (not building the statue). If no voter is decisive, each will state a positive value for project A because that's the only way of getting any utility, and the project IS undertaken. Since no voter is decisive, each voter takes the tax share as given and exogenous (the statue either will or won't be built, regardless of his vote). Optimization then requires voting for the project. > He does not "vote for" the statue. With demand revelation, he only states > the maximum he would be willing to pay. In this case it is $8. What makes > demand revelation superior than ordinary voting is that one states a value > for the good rather than voting yes or no. Ok. Same example as before, each individual voter obtains expressive utility of $5 from stating a value of $50. Project is built. But I still argue that nothing in the Tideman/Tullock system requires that the sum of the stated benefits has to exceed the known project costs; the system simply picks the option with the highest expressed valuation. In the example from before, option A is to build the statue, option B is to not build the statue. If there were zero expressive benefits anywhere, all voters would state a willingness to pay of $47 for option B ($50 average cost less $3 utility from looking at the statue) and option A would not be chosen. Well, for those voters bothering to vote in the first place given lack of decisiveness. If expressive benefits attach to expressing some positive valuation for project A, then voters will switch to expressing that positive valuation for A and A will be chosen. The certainty of the expressive benefits always trumps the probabilistic benefits of voting instrumentally when the probability of decisiveness is low. Eric > > Fred Foldvary > > ===== > [EMAIL PROTECTED] > >
