--- Eric Crampton <[EMAIL PROTECTED]> wrote:
>>I don't see why the total social cost would differ from the
> > total private costs.
> 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 does not take a "vote", by which I presume you
mean ("yes" or "no") or ("A" or "B").
The process involves having each participant state the maximum amount he
would be willing to pay for either A or B.
So your example should indicate how much the individuals are stating.
> Nobody compensates society under the demand revealing process. Check
> Tideman/Tullock 1976. All revenues collected must be wasted. Tullock has
> confirmed this in conversation.
I don't regard that as authoritative. The revenues can be given to charity
without disrupting the outcome.
Hal Varian describes demand revelation in his textbook * Intermediate
Microeconomics * (chapter on public goods). He states:
"The tax is not paid to the other agents - it is paid to the state. It
doesn't matter where the money goes, as long as it doesn't influence anybody
else's decision; all that matters is that it be paid by the pivotal people so
that they face the proper incentives."
> The money
> must be turned into real resources which would be destroyed.
So long as the benfit is not specific to those who participate, I don't see
why the resources must 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."
Right. And this does not require the destuction of resources.
> 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.
You are leaving out the cost. The demand revealing process posits a good
with a cost C for N persons. The average cost is C/N. Each agent is
assigned a specific cost, such as C/N, which he must pay if the outcome is to
obtain the good. The participants are asked:
How much is most you would be willing to pay for the good if the cost to you
will be C/N if the decision is to obtain it?
If indeed the decision is to do it or buy it, then all participants pay their
assigned cost.
> 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 you state a value of $5 million knowing you will pay $100, then your
revealed preference is to pay that cost to obtain that good, and the benefit
is revealed to be greater than the cost for the group as a whole if the sum
of their stated value exceeds the cost.
> Please tell me which version of the demand revealing process you're
> referring to. I'm looking at Tideman/Tullock, 1976.
I read it, but don't have it in front of me.
I am looking now at Varian's explanation. He cites T/T 1976.
> Nowhere does it
> specify that any cost/benefit analysis is undertaken.
I'll look at T/T again, but the method does not make sense if there is no
preassigned cost that the agent is comparing the benefit to.
> 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 neither has a stated cost, and there is no pre-assigned cost per
participant, then of course you will get an inefficient outcome. Any
rational economic decision must account for costs.
Fred
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