On Thu, 29 Aug 2002, Fred Foldvary wrote:
> > 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.
In the example above, each voter states that he's willing to pay $5
million for option A. All voters do that, so no voter is the decisive
voter and no voter pays the tax. Each voter gets the sure-bet payoff of
$5 worth of expressive benefits rather than the $100,000 in benefits that
each could have gotten if B had been chosen.
> I don't regard that as authoritative. The revenues can be given to charity
> without disrupting the outcome.
Tideman/Tullock is fairly authoritative on this topic. There have been
extensions since their article that specify complicated mechanisms to
avoid wasting the taxes collected in the use of the demand revealing
process, but those losses are tiny compared with the inefficiencies in
outcomes that can be generated when expressive voters are let loose on the
demand revealing system.
> 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."
Varian is right when he says that it doesn't matter where the money goes
so long as it doesn't influence anybody else's decision. The caveat is
important though, and the mechanisms that have been designed thus far to
avoid the waste are rather cumbersome.
> > "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.
That wasn't the point I was making. You were arguing that the DRP ensures
social efficiency and ensures that the winners compensate the losers. I
was pointing out that it does no such thing.
> > 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.
The cost seems rather irrelevant. Since no voter sees himself as
decisive, no voter takes the cost into account. All calculation is based
on the expressive benefits that can be generated from placing a vote/bid.
>
> > 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.
I state a value of $5 million knowing that whether I have to pay the $100
average cost is not determined by my bid. I only get $5 in expressive
benefits, but since I'm going to have to pay the $100 regardless of what I
bid, I might as well state $5 million to get the $5 in expressive
benefits. Stated preferences in the DRP have zero connection to revealed
preferences.
> 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.
The only way that DRP can be construed as calculating cost/benefit is if
all voters are instrumental. Then, we can simply compare the stated
values for A and B and see which is higher. When voters are expressive,
we get the disconnect between stated values and individual valuations.
> 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.
That isn't what drives the inefficiency. What drives the inefficiency is
that all voters take whether they have to pay the cost as being
exogenously determined, and optimize from there. Given zero decisiveness,
expressive preferences reign.
Eric
>
> Fred
>
> =====
> [EMAIL PROTECTED]
>
>
