Friday, October 21, 2011

Once Again, In Defense of Vote Buying

A week ago, I wrote about using vote buying mechanism to prevent political parties from buying our votes. You can see the article here. Furthermore, there is also an article from Greg Mankiw and Michael Sandel in 2007 on why vote buying should not be allowed. Before I update my proposal, I'll give some comments to Mankiw and Sandel's ideas.

The Inherent Problem of Mankiw and Sandel Cases
 
The main argument of Mankiw is that vote buying can produce externalities to third parties. I guess there's a grain of truth in his idea, but unfortunately, his example does not make any sense at all. I reproduce his case here for ease or reference:

"Suppose three voters are deciding whether to provide a public good that costs $9, which would be financed by a $3 tax on each voter. Andy values the public good at $8, while Ben and Carl do not value it at all. Under majority voting, Ben and Carl vote against, and the public good does not get provided, which is the efficient outcome.

Suppose, however, that Andy could buy Ben's vote for $4. He could then ensure the project gets passed. Andy is better off by $1 (the $8 benefit minus the $3 tax and the $4 price of the vote), Ben is better off by $1 (the $4 price of the vote minus the $3 tax), and Carl is worse off by $3 (the $3 tax). The Andy-Ben vote deal has negative externalities on Carl."

What's the main problem of his case above that can be answered by public choice theory? His case stops at the fact that Carl is worse off by $3. If Carl is a rational person, what would he do? He can also offer to purchase Ben's votes for $2, after all, losing $2 dollar is better than losing $3 and for Ben, receiving $2 is surely more attractive than receiving a net benefit of $1 from Andy.

Then what will Andy do? He can choose to increase his offer to $5 for Ben's vote and therefore receives no benefit from the policy. At this point, Andy's marginal cost equals his marginal benefit, it's the point where he should stop because any further increase on the price of Ben's vote will cause losses to him. What would be the proper response of Carl? He can stop, or he can also choose to offer $3 dollar for Ben's vote. It's the same for him both ways, if he stops, he will lose $3 anyway, so he still has the incentive to offer such $3 (marginal cost equals marginal benefit). Now, if Andy is rational, he will stop, because he knows that proceeding with the vote buying battle will only end up with further losses. How about Carl, should he pay Ben? No, because his offer is basically only valid when Andy still wants to buy Ben's vote. There is no need for him to pay Ben if in the end Carl cancels his plan. Of course you can say that under this circumstance, Andy will come again to offer Ben to sell his votes. True, but then Carl can also do the same and a problem of cycling will be created.

Sandel's argument is more persuasive, he shows that it is possible for Andy to actually persuade Ben to establish a value for the proposal and therefore he will vote in favor of Andy's proposal without having Andy to buy Ben's vote. In this case, Sandel argues that the end result will be the same for both cases (involving vote buying or not), there will be some costs imposed to Carl. However, even in this case, Carl can always offer to buy Ben's vote for a price.

Sandel says that suppose Ben values the proposal for $4 after hearing Andy's persuasion, meaning that he will reap a benefit of $1 if he vote for the proposal. What can Carl do? Of course, he will offer Ben $2. What will then Andy do? He can offer a price of $5 to buy Ben's vote and then Carl will offer Ben a price of $3, and Andy will face the same problem again. Another cycling will be made in Sandel's case.

The simple problems created by Mankiw and Sandel actually resemble the real political life. It's a case of battle between interest groups where benefits will be spread to the majority by imposing costs to a group (wide spread benefit vs narrow cost). Of course, the group will not just sit and wait for the impeding doom. They will fight for their right and if they have to lose something, they will make sure that at least it shouldn't exceed their total expected costs should the problematic policy is promulgated. I'll deal with this issue in another post. Now, let's return to my further elaborated proposal.

The Elaborated Proposal for Vote Buying

Since I'm still in favor of vote buying for Indonesia, I'll try to elaborate more my original proposal in this post. Further comments and questions will be much appreciated.

The basic principle is that in a general election, voting is the commodity, people are the sellers, and political parties are buyers. Now, what's the main reason for political parties to buy our votes? Assuming that these guys are rational, I would say that they buy our votes on the basis that the expected benefits that they will reap after they secure a position are still bigger than the total expected costs that they will incur during the election. The costs can include campaign costs and any penal sanctions that may be imposed to them if they're caught (vote buying is still illegal in Indonesia).

However, as I've said numerous times, you can't separate law from the legal enforcement. In our country, it is safe to assume that the probability of being caught and sentenced for vote buying is quite slim, meaning the costs of getting caught is not that big and therefore there is less incentive for complying with the law. In this case my proposal would be: vote buying should be legalized, any political parties are allowed to actually come to us and offer a price for our vote. This is the basic proposal, but to ensure that it can work, I'll add some additional rules.

1. Minimum Price Cap

There should be a minimum price cap for our votes which reflects the expected benefits of the political parties should they win the election. I would say though that since the number of Indonesian citizens are very huge, increasing a little bit of the price of our votes would have significant financial impact to our political parties in case we can't assess their expected benefits (so at least we impose higher costs to them). Say that the current market price of our vote is around Rp50,000 per vote and then we increase that to Rp55,000 per vote. Assuming that there will be at least 100 million voters, an increase of Rp5,000 per vote is equal to an additional total costs of Rp500,000,000,000 or around US$55,000,000.

2. Bidding System

We can choose two systems to sell our votes. The first is by using the rule of Tullock Auction  (Gordon Tullock is a famous public choice theorist), where all political parties can bid for our votes and the highest bidder will win all of our votes, however, the ones who lose the bid will also be required to actually pay the amount that they have offered during the bid process to us. 

Second, we can use a system where each political party can bid for our votes by paying us directly, but: (i) they are required to disclose the amount publicly (or we can ask the media to do that), (ii) they are required to deposit a non-refundable minimum amount to us for their offering (say 10-15% of the offer price); (iii) there would be no legal guarantee that the voter will vote in accordance with the bid winner, meaning, the winning political party can't go to the court to enforce their right to be voted by us, and (iv) the political parties can always change their offering to us until the date we walk to the election booth and set our vote.

You may say that the above system is crazy, no one would like to enter into this kind of arrangement where the seller position is absolute. But that is precisely why we need to adapt this kind of system. In the current system, it is very hard to proof that political parties are involved in money politics. Have you ever considered the costs imposed to us for all of these hidden money politics and also the total costs of the national and general elections (all of those disputes in the Constitutional Court and the re-elections)? Not only it's a waste of tax payers money, it also does not provide us with the best candidates to lead our country.

Under my proposed system, there would be less incentives for political parties to buy our votes. Why? First, we eliminate small parties by this system, leaving all the major parties in a competition to rule us all. Second, unless there is a super political party with infinite source of funds, no one will ever win the vote bidding.

Let me tell you how this will work in practice by using an assumption that there are 3 parties, A, B, and C and that each party has more or less the same financial condition. Each of A, B, and C would have the incentives to win the election because they know that they can win the election by money and that the losing party will most likely lose everything. Since they all know the other party prices, they will continuously try to outbid the other party until they exhaust all of their money, creating a cycling problem. Of course in this case, A can make a coalition with B to defeat C in the vote bidding, but C can also offer B to instead cooperate with it and defeat A. Another infinite cycling will also be created here.

Furthermore, since there is no guarantee that people will vote for they who pay the most, there are incentives for these parties to offer things other than money to induce people to vote them and I'm quite certain that there would be no case where we end up with an absolute winner after the vote bidding fight just because it pay the most.

Their only solution is to actually agree to stop using money and induce voters to vote them for other reasons. True that under this regime, there would always be an incentive to betray such agreement, but since it will create another cycling problem, they will be forced to comply. Suppose A, B and C agree that they will not use money to buy our votes. Then, B realizes since it is still legal to buy our votes, they can try to buy our votes behind A and C. A and C, fearing something might happen behind their back, will start to have the same incentives and will also return to money politics. You see where this is going? So the conclusion is clear: stop using money to buy our votes or end up being caught in an infinite vicious cycle.

Of course this is not a bullet proof mechanism, if A, B, and C have a very stable coalition, we would be in big trouble. But I guess that would not happen in Indonesia, after all , no groups of robbers will ever have a stable coalition since each of them would try to maximize their own benefits on the expense of others. For further readings, try searching in Google for Arrow's Impossibility Theorem.

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