"An Economic Theory of Democracy" Outline

Part I: Basic Structure of the Model

Chapter 1: Introduction

*Government is dominant, but not as predictably rational as consumers, so where do they fit within economic theory and equilibrium?

I. The Meaning of Rationality in the Model

1. The Concept of Rationality in Economic Theory

i. To study a pattern of decision, economists must assume an ordering of behavior takes place.

ii. If a decision-maker is rational, he will calculate the most reasonable way to reach his goals, and that that way will be chosen because the decision-maker is rational.

iii. Economic analysis thus consists of (1) discovery of the ends being pursued, and (2) analysis of which means of attaining them are most reasonable.

iv. The term “rational” is never applied to the ends, only the means.

v. A rational man is not judged by goals, but by his ability to use the least possible input of resources per unit of valued output.

vi. Additionally, a rational man can (1) always make a decision when presented with alternatives, (2) ranks alternatives in order of preference, (3) his preference ranking is transitive, (4) he always chooses among possible alternatives, the choice with the highest ranking and (5) he always makes the same decision with the same alternatives.

1. The Narrow Concept of Rationality in the Present Study

i. We can’t assume all behavior is rational just because (1) it is aimed at some end and (2) its returns must have outweighed the costs in his eyes.

1. E.G. Man desires party A, but wife nags for party B. While it may be rational personally for him to vote for party B if ending the nagging is more important to him than choosing govt., it is irrational in this model because he employs a political device for a non-political purpose.
2. Thus, we do not take into consideration the whole personality of each individual when we discuss what behavior is rational for him.
3. We acknowledge there are plenty of exceptions.

ii. However, if we are to successfully analyze political and economical decisions within the model, we must assume political decisions will be decided upon rationally.

1. Irrationality and the Basic Function of Political Rationality

i. We must assume that a mistaken rational man at least intends to be rational

ii. A rational man systemically making some mistake will cease to do so if (1) he discovers what the mistake is and (2) the cost of eliminating it is smaller than the benefits therefrom.

1. Likewise, an irrational man will fail to rectify errors because he has a non-logical propensity to repeat them.
2. We recognize the hypothesis’ limitations such as: how can we tell if a man is irrational or merely lacks information?

iii. While some ambiguity is inevitable, whenever uncertainty increases greatly, rationality becomes difficult

1. The Structure of the Model
   1. Governing seek to maximize political support, but governing parties cannot hamper the operations of other parties in society

i. Government’s power has no limits but it must maintain political freedom

1. We must assume that every government’s goal is to be reelected

i. Only by assigning government this purpose can we discover the most efficient means it can employ to achieve that purpose.

1. This world differs from the usual general-equilibrium world because it contains uncertainty

i. In order to study the basic logic of decision-making in our political economy, we will assume perfect knowledge.

ii. Uncertainty, however, is a basic force affecting all human activity, particularly economic activity.

iii. Facing uncertainly helps us learn more about the problem it creates.

1. The Relation of our Model to Previous Economic Models of Government
   1. The Problem of False Personification vs. Over-Individualism

i. Since every man enjoys the benefits of every government act, no matter who pays for it, each man is motivated to evade paying. Citizens agree to be forced to pay taxes since each individuals gain offsets his part of the cost for benefits which otherwise would not be had.

1. Some reject this notion because most government acts aid some people more than others, and marginal expenditure can harm some citizens
2. Government is neither organismic because it doesn’t function apart from men, nor is it individualistic because of coalitions that need to form and function together
3. The Social-Welfare-Function Problem

i. Using a social welfare function is flawed in that it doesn’t account for individual desires or multiple-choice situations, therefore forcing us to rely on cardinal utility and interpersonal welfare comparisons.

ii. OUR model forges a positive relationship between individual and social end structures by means of a political device.

1. Because each adult citizen has a vote, his welfare preferences are weight in the eyes of the government, which is interested only in his vote, not his welfare.
2. Although our model is related to basic welfare-economics, it is not normative, so we cannot use it to argue that society is better off in state A than in state B.
3. Only normative element is that every man gets 1 vote

iii. The relationship we construct between individual and government ends is one that will exist under certain conditions, not one that should exist because it fulfills some ideal set of requirements

1. Technical Problems

i. While normative approaches to government decision-making feature devices such as referenda on every decision, perfect knowledge, and precise calculation, these are considered impractical by rational men and are not part of our model.

ii. Our analysis suffers from a generality; we cannot know the full details of our vote function.

1. Summary
   1. Although governments are of crucial importance in every economy, there is no behavior rule comparable to those used to predict the actions of consumers and firms.

i. Our thesis provides a rule in positing that democratic governments act rationally to maximize political support (i.e. get reelected)

ii. Government pursues its goals under 3 conditions: (1) a democratic political structure which allows opposition parties, (2) an atmosphere of varying degrees of uncertainty and (3) an electorate of rational voters

iii. Our economic model of government avoids extremes between organismic and individualistic conceptions of the state

1. State has many legitimate roles outside income transfers and actions with indivisible benefits.
2. Our model will help discover what form of political behavior is rational for the government and citizens of a democracy.

Chapter 2: Party Motivation and the Function of Government in Society

*Government holds power but its uses and role in relation to such power is wide, how can these be defined?

1. The Concept of Democratic Government in the Model
   1. The Nature of Government

i. Government has a monopoly on power, decision-making

1. We can assume government will do anything it constitutionally can, but not all government systems act the same

ii. The government is a specialized organization distinct from all other social agents

1. The Nature of Democratic Government

i. A government is democratic where the following conditions prevail:

1. A single party (or coalition of parties) is chosen by popular election to run the governing apparatus
2. Such elections are held within periodic individuals which cannot be altered by the party in power acting alone
3. All adults who are permanent residents are sane, abide by the laws and are eligible to vote
4. Each voter can only cast one vote
5. Party receiving the most support takes over the powers
6. The losing party never prevents the winning party from taking office
7. The party n powered never attempts to restrict the political activity if any citizens as long as they don’t attempt an overthrow by force
8. There are two or more parties competing for control of the governing apparatus in every election
9. The Role of Political Parties in the Model
   1. The Nature of Political Parties

i. Political party is a team of members, foregoing a coalition, who agree on all their goals instead of just part of them

ii. According to our definition, anyone who regular votes for or contributes money to a party is considered a member of that party – they don’t have control, however, over decision-making

iii. We assume complete agreement on goals among members of an office-seeking coalition

iv. We can treat citizens and political parties as two mutually exclusive groups

1. Even if they are government employees, they are considered citizens because the coalition/team members control their actions
2. The Self-Interest Axiom

i. Throughout our model we assume that every individual, though rational, is selfish.

1. Every individual action falls in accordance with this view of human nature
2. In real life, men do what appears to be individually irrational because they believe it’s socially rational, however we must assume the self-interest axiom to consider democracy from an economic standpoint
3. The Motivation of Party Action

i. We assume party members act solely in order to attain the income, prestige and power, which come from being in office.

1. Therefore, the goal of being in office is to be reelected
2. While policy-making is the formal purpose of the office, it is combined with private interest of reelection

ii. The self-interest axiom has two limits:

1. A member will not perform illegal acts, such as taking bribes or using his power to violate the constitution
2. A member will not try to benefit himself at the expensive of any other member of his own party team
3. The Specific Goal of Parties

i. Party members are motivated by the desire for power, but only reap its rewards by achieving the primary goal of being elected

1. Thus, in turn, implies that each party seeks to receive more votes than any other
2. Thus, our model reasons that the self-interest axiom creates vote-maximizing government parties

ii. A party, then, manipulates policies and action in whatever way it believes will gain it the most votes without violating constitutional rules

1. The Relation of the Model to Ethics and Descriptive Science
   1. Normative Implications

i. Ethical models of democracy generally are constructed around achieving “good” goals with necessary behavior.

1. However, this model is not always rational in the economic sense if not efficient
2. Descriptive Implications

i. Our model proposes a single hypothesis to explain decision making along with testable corollaries

ii. Our model also tells us what we can expect if men act rationally in politics

1. Shows what phases of politics in the real world men are rational
2. Shows what phases they, in real life, are irrational
3. Shows how they deviate from rationality in the latter

iii. Our does not attempt to describe reality accurately, but to explain model counterparts in the rational world of our study

1. Summary
   1. A democratic government and parties follow certain rules in a civil society, and members are motivated by their person desire for the power of holding office – only achieved through votes

i. All policy then, is a matter of weight votes to be earned or lost

ii. Parties aim to maximize votes

1. In descriptive science, our model:

i. Advances the vote maximizing hypothesis as an explanation fo democratic political behavior

ii. Constructs a positive norm by which to distinguish between rational and irrational behavior in politics

Chapter 3: The Basic Logic of Voting

*Government must be able to establish relationship between policies and the way each citizen casts a vote. How do we establish rational voting?

1. Utility Income from Government Activities
   1. Rational voters always vote for the option with his highest personal utility.

i. Utilities are considered the benefits for voters derive from government activity.

ii. Ceteris paribus: Given several mutually exclusive alternatives, a rational man always takes the one that gives highest utility.

1. All citizens are constantly receiving streams of benefits from government classified as utility, including infrastructure, police services, etc
2. Model also leaves room for altruism- utility can be raised even when money is taxed or donated if it is understood as being in a person’s personal interest

i. This model of utility also includes utility income, or benefits that a recipient does not realize he is receiving. (e.g. FDA inspection)

1. Only benefits which voters become conscious of by election day can influence their voting decisions; otherwise their behavior would be irrational
2. The Logical Structure of the Voting Act
   1. Terminology of the Analysis

i. Because a flow of benefit can only be measured as rates per unit of time, benefits are measured through an election period

1. Voters consider the upcoming election cycle and the one after
2. The Two Party Differentials

i. To determine which party will provide the most utility for the upcoming election cycle, a voter must compare the utility incomes he would receive – measured as E(UaT+1)-E(UbT+1)

1. The difference between these two expected utility incomes is the citizen’s expected party differential
2. If positive, voter chooses the incumbents; if it is negative, he votes for the opposition; if zero, he abstains.

ii. How should a rational voter calculate the expected utility incomes from which he derives his expected party differential?

1. Voter compares future performances he expects, but also estimates in his own mind of what the parties would actually do when in power
2. Because one of the competing parties is already in power, its performance in period t gives him the best possible idea of what it will do in the future
   1. In this line of thinking however, it would be irrational to compare the present performance of one party with the future performance of another
   2. For evaluations during the same time, voter must compare the hypothetical future outcomes of both, or present actual vs hypothetical
   3. The most important part of a voter’s decision is the size of his current party differential, i.e. the difference between the utility income he actually received in period t and th one he would have received if the opposition had been in power.
   4. The rational man in ur model applies to two future-orienting modifiers to his current party differential in order to calculate his expected party differential
   5. The Trend Factor and Performance Ratings

i. Trend factor is the adjustment each citizen makes in his current party differential to account for any relevant trend in events that occurs within the current election period.

1. For example, party may have started out superbly, but is disapproved of currently, so voter may project that into his expected party differential

ii. Second modifier comes into play only when citizen cannot see any difference between the two parties running.

1. To escape this deadlock, voters alters his decision to whether or not the incumbents have done as good a job governing as did their predecessors in office.
2. In effect, every election is a judgment passed upon the record of the incumbent party.
3. Men who are benefiting from the incumbents’ policies may feel that change is likely to harm rather than help them.
4. Abstention is rational only if a citizen believes that either (1) the policy changes that will be made if the opposition is elected will have no net effect upon his utility income or (2) these changes may affect his income, but the expected change is zero.

iii. In the real world, men often compare what government is doing with what it should be doing without referring to any other party.

1. These performance ratings enter a voter’s decision0making whenever he thinks both parties have the same platforms and current policies.
2. Preliminary Difficulties Caused by Uncertainty
   1. In order to determine his current party differential, a voter in a two-party system must (1) examine all phases of government action to find out where the two parties would behave differently, (2) discover how each difference would affect his utility income and (3) aggregate the differences in utility and arrive at a net figure which shows by how much one party would be better than the other

i. This is how a rational voter would behave in a world of complete and costless information, in the real world, uncertainty and lack of information prevents this kind of decision making

ii. Real world decisions would then be based off of estimates

1. When the total difference in utility flows is large enough so that a voter is no longer indifferent about which party is in office, his party differential threshold has been crossed.
2. Two major problems that occur in this system include uncertainty, false information and ignorance as well as a voter changing his mind based on hypothetical streams of utility income and the “good and bad” for society.
3. We assume citizen’s political tastes are fixed, and an evaluation of each party ultimately depends on (1) the information a voter has about its policies, and (2) the relationship between those of its policies he knows about and his conception of the good society.
4. Variations in Multiparty Systems
   1. Our analysis can easily be extended to a multiparty system

i. Voter simply must compare the incumbent party with whichever opposition parties have the high present performance ratings or would yield him the largest utility income.

1. However, in a multiparty system, a rational voter may at times vote for a party other than the one he most prefers

i. i.e. progressive person votes democrat because the candidate may have no chance.

1. Deviations from the expected are because election are not only a means of selecting government but also of creating social solidarity, an expression of political preference, a device for releasing personal aggression in legitimate channels, or an incentive for citizens to inform themselves about current events
2. A rational voter first decides what party he believes will benefit him most; then he tries to estimate whether this party has any chance of winning.

i. If voter prefers A, but knows they wont win, A is considered a waste of a vote and so irrational. Voter will switch to b or c.

ii. Can be rational to choose less likely winner if the voter believes is vote will enable a lesser party to grow and someday become a likely winner.

1. Summary
   1. In a world with complete information, the rational citizen makes his decision in voting in different ways

i. Comparing the stream of utility income from current and possible parties and comparing party differentials

ii. In two-party, voter votes for party he prefers, but in multiparty considers other things as well

1. If there is a chance for winning
2. If there is no chance of winning so he picks the next best option
3. If there is no chance of winning but voter is future-oriented and wants to rally support

iii. If there is no preference among parties as far as order of preferences goes, voter can do a few things

1. If the parties are deadlocked, he abstains
2. If parties are deadlocked on policies, he compares performance ratings and decides – if still neutral, he abstains.

Chapter 4: The Basic Logic of Government Decision-Making

*While traditional economic theory assumes the social function and private motive of government both consist of maximization of social utility or social welfare, our model differs. How?

1. Fundamental Principles of Government Decision-Making
   1. The Concept of Marginal Operations

i. Because government wishes to maximize political support, it carries out those acts of spending which gain the most votes and lose the fewest because of financing increases

1. In other words, expenditures are increased until the vote-gain of the marginal dollar spent equals the vote-less of the marginal dollar financed.
2. This is different than the vote function for social-utility function since the government in this model is not directly competing for votes
3. Further, opposition parties usually do not have to commit themselves on any issue until after the incumbent party’s behavior as the government has revealed its policy.

ii. We assume the new government only makes partial alterations in the scheme of government activities inherited from the preceding administration; it does not recreate the whole scheme.

iii. Even if total utility income exceeds total loss of utility in taxes and to government acts a voter dislikes, he may still strongly disapprove of some marginal government activity on say law enforcement or maintenance of national defense

1. A vote against any party is therefore not a vote against government per se but net disapproval of the particular marginal actions that party has taken.
2. Thus, both the government and the voters are interest in marginal alterations in government activity- these may still be big changes
3. A series of marginal changes may alter the whole structure of government acts; so the meaning of “marginal” is related to the time units chosen
4. The Majority Principle

i. We have to make assumptions to clarify how government makes its decisions

1. All decisions are made by a central unit in the government, which can look at all margins of possible action.
2. At each margin, there are only two alternative of action, M and N
3. All government choices are independent of each other, i.e., the outcome of each decision has no bearing on the possible choices or outcomes of any other decision
4. There are only two parties competing for control of the government, one of which is now in office
5. Each party knows the nature of all the utility functions of individual voters, so that it can tell whether and by how much each voter prefers M or N for every choice it is considering. By this we assume intrapersonal cardinality of utility, but we say nothing about interpersonal comparisons,
6. Voters are informed without cost of all possible government decisions and their consequences, and they make voting decisions rationally

ii. Under these radically oversimplified conditions, the government subjects each decision to a hypothetical poll and always chooses the alternative which the majority of voters prefers

1. It must do this because, otherwise, the opposition party can defeat it
2. To avoid defeat, the government must support the majority on every issue
3. Opposition Strategies Against the Majority Principle
   1. Complete Matching of Policies

i. Following the majority principle is the incumbents’ best policy, but it does not guarantee victory in every election.

ii. The simplest opposition strategy is adoption of a program identical with that of the incumbents’ in every particular

1. This method forces citizens to decide how to vote by comparing the incumbent’s performance rating with those of previous governments.
2. This is unlikely to happen however, as a majority-pleasing party is unlikely to have a low-performance rating
3. A Coalition of Minorities

i. Under certain conditions, the opposition can defeat a government which uses the majority principle by taking contrary stands on key issues, i.e., supporting the minority.

1. The government does not always please the same set of men when it takes the majority position, this creates coalitions of minorities
2. More than half of the citizens who vote are in the minority on at least one issue

ii. Each citizen who holds the minority view on some but not all issues has a stronger preference for those policies he favors when in the majority than for those he favors when in the majority.

1. Therefore, once the government has been elected, most would rather have it follow the minority’s views on every secondary issue than the majority’s views because men are more vehement about their minority views than their shared majority views.

iii. The opposition party need to commit itself to any issue until the incumbents have revealed their position on all issues

1. This prevents incumbents from adopting a minority-pleasing strategy because they have to state their position first, and can always be countered

iv. If a minority party is elected to office, it then becomes the incumbents and faces the same problems it overcame

v. Parties are expected to regularly alternate in power, but they still work to maximize votes in incumbent or minority positions to account for uncertainty or prep for the next election

1. The Arrow Problem

i. If voters disagree in certain particular ways about what goals are desirable, the government may be defeated because it cannot follow the majority principle even if it wants to.

ii. As long as the government must commit itself first, the opposition can choose some other alternative, match the government’s program on all other issues so as to narrow the election to this one, and defeat the incumbents – no matter what alternative the incumbents choose!

1. The Role of Certainty in the Model
   1. If we assume certainty, parties know what voters prefer and can dominate attention and force the social system into a breakdown
   2. Because the government knows it has no reason to follow the majority principle on any issue once an arrow problem is presented, it will more likely seek material gain for its own members, or continue trying to maximize votes
   3. If the government adopt any minority position, the opposition can match all but that policy to try and win

i. Despite the seeming inevitability of defeat after election in this model, we assume the goal will always continue to be maximizing votes.

1. The Prevalence of the “Will of the Majority”
   1. The Rule of the Passionate Majority

i. The government does not always follow the majority principle even in a certain world.

1. When the opposition adopts a coalition-of-minorities strategy, government may support the minority occasionally so as to maximize chance of a tie outcome.
2. Or if an opposition party gains office by following a minority-coalition strategy, it will carry out minority-pleasing policies whenever similar issues arise again
3. When arrow problems arise, there is no majority principle.
   1. In a two party system, however, both parties nearly always adopt any policy that a majority of voters strongly prefer.
   2. Neither party can gain from holding the minority view unless the majority hold their opinions lukewarmly

ii. Rule of the passionate majority says basically that voters may be willing to sacrifice their minority position on a issue to vote for a candidate with which they agree much more passionately with on an issue in the majority

1. Reversed, this can be used for a coalition of minorities

iii. The factor that determines whether a man takes a passionate-majority stand is not his relative gain from each issue but his total gain from the whole combination of issues.

1. In short, total gain on all issues is more important than the rate of gain on any particular issue.

iv. Our model shows that a passionate majority is not necessarily more passionate about its views than the minority it overrules.

1. Parties do not compare the intensity of the majority’s feelings with those of the minority; they appraise the willingness of each citizen to trade the outcomes he prefers when in a majority for those he prefers in a minority.
2. The Political Significance of Passionate Majorities

i. Interpersonal comparisons are in fact the essence of politics, because its function is the settlement of conflicts between men.

1. Neither passion nor its absence adds to the political weight of his opinions in a certain world

ii. Majority rule prevails in government policy formation only when there is a consensus of intensities as well as a consensus of views.

1. Consensus of intensities means that most citizens agree on which issues are most important even if they disagree about what policy to follow on each issue.
2. Consensus of views means that on any issue a majority of citizens favor one alternative over the other.

iii. In a two-party democracy, government policies at root follow whatever a majority strongly desires, and the range of deviation from its aspirations is relatively small.

1. Thus, democracy leads to the prevalence of the majority’s views whenever most citizens agree with each other more emphatically than they disagree with each other.
2. One extremely important social force is the division of labor because it increases men’s dependence on one another, and creates a need for agreement and specialization
   1. Because each man earns most of his income in his area of specialization, a citizen is likely to have more intense feelings about his specialty than about is general interests – which he shares with most others.
   2. Thus, specialization is a divisive force in democracy which encourage men to ally as minorities to thwart the will of the majority
   3. The Budget Process
      1. Budget Decisions Under the Majority Principle

i. With spending policy, the government starts out with a mass of essential activities that it knows by experience are worth their cost in votes.

1. There will probably exist a set a of basic revenue-raising devices which that government knows cost less in votes than would cessation of those activities they support.
2. Thus the crucial weighing of votes occurs at the margins of both expenditure and revenue patterns

ii. Governments separate the early stages of expenditure planning from revenue-planning and rates plans by additions to or subtractions from the individual utility incomes of every voter.

1. The government is likely to adopt any act of spending which, coupled with its financing, is a net addition of utility to more voters than it is a subtraction
   1. An error in this judgment will likely by taken up by the opposition for the upcoming election
   2. This causes parties to innovate to meet social needs and keep pressured and technically in step with their competition
   3. Budget Decisions Under Other Conditions

i. The government need not worry about the net impact upon a voter’s utility income of each action, but instead of all its actions taken together.

1. By simplifying the millions of voters into a small number of bloc, and merging thousands of acts into a few major policy groups, the government can actually make some calculated decisions like this
2. It can take into a account how a given policy will affect farmers, labor, business men, etc. and how this will fit into the net effect its whole program will have on groups by election day.
3. How Government Acts are Related to Voters’ Utility Functions
   1. The relationship of mutual interdependence can be transposed into a set of equations which equal the following:

i. The actions of the government are a function of the way it expects voters to vote and the strategies of its opposition

ii. The government expects voters to vote according to changes in their utility incomes and the strategies of opposition parties

iii. Voters actually vote according to changes in their utility incomes and alternatives offered by the opposition

iv. Voters’ utility incomes from government activity depend upon the actions taken by government during the election period

v. The strategies of opposition parties depend upon their views of the voters’ utility incomes and the actions taken by the government in power

1. The aforementioned equations show the circularity of our analytical structure

i. Votes depend upon actions, and actions depend upon votes. Other variables must be added later.

1. Summary
   1. Governments continue spending until the marginal vote gain from expenditure equals the marginal vote loss from financing needs

i. Determinants of vote loss and vote gain are utility incomes of all voters and the strategies of opposition parties.

1. Under conditions of uncertainty, a government’s best strategy is to adopt choices favored by a majority of voters.

i. If it fails to adopt the majority’s views, its opponents will do so and will fight the election on this issue only, thereby insuring defeat

ii. However, conforming to the will of the majority does not guarantee reelection for incumbents

1. Since governments plan their actions to please voters and voters decide how to vote on the basis of government actions, a circular relation of mutual interdependence underlies the functioning of government in a democracy.

Part II: The General Effects of Uncertainty

Chapter 5: The Meaning of Uncertainty

*If uncertainty is intrinsic to particular situations, we can only assume that the intensity of uncertainty can be reduced by information. How is this explained?

1. The Nature of Uncertainty
   1. Uncertainty can be reduced by information

i. Information can only be obtained by the expenditure of scarce resources

1. Intensity of uncertainty is expressed by the degree of confidence with which a decision-maker makes his decision

i. If added knowledge clarifies the situation in his mind and points more strongly to one alternative as being the most rational, his confidence varies directly with the amount of data he has

1. Conversely, if additional information contradicts what he already knows, his confidence falls as he learns more.

ii. As a general rule, the more information acquired, the more confidence of making the right decision the voter is

1. Therefore, information is valuable if it increases confidence in a correct decision; even if it does not change the decision tentatively arrived at.
2. Marginal returns from this use of data rapidly diminish towards zero (the more confident, the less he can gain further information)
3. Uncertainty is irrelevant to a given decision if the decision is trivial

i. A man may have an extremely high degree of confidence about some of his decisions even if he lives in a world of tremendous uncertainty

ii. Uncertainty must refer to particular events; it is not a general condition

1. All here of these dimensions of uncertainty can be merged into the level of confidence with which a decision-maker makes each decision

i. Absolute confidence means uncertainty has been removed, though this is rare

1. Reason, Knowledge, and Information
   1. Reason is facility with the processes of logical thought and the principles of causal analysis; we assume all men possess it
   2. Contextual knowledge we define as cognizance of the basic forces relevant to some given field of operations. Contextual knowledge is:

i. More specific than reason

ii. Not common to all men but is acquired to a greater or less degree through education

iii. Can be an object of specialization

1. Information is data about the current developments in and status of those variables that are the objects of contextual knowledge.
2. From these definitions, we can see that a man can be knowledge-able without being informed, or informed without being knowledge-able, but he cannot interpret information without contextual knowledge.

i. Therefore, when we speak of an informed citizen, we will be referring to a man who has both contextual knowledge and information about those areas relevant to his decision-making.

1. The Forms of Uncertainty in Our Model
   1. Voters may be uncertain in the following ways:

i. They may be aware that their total utility incomes have altered, but be uncertain about what caused them to do so, particularly about whether government or private action was responsible

ii. They may not know the repercussions upon their own utility incomes of some proposed (or undertaken) government action, mainly because they do not know what changes in object conditions it would cause

iii. They may be completely unaware of certain actions being carried out by the government, or of alternatives the government could have undertaken, or both

iv. They may be uncertain how much influence their own views have on the formation of government policy

v. They may be uncertain about how other citizens plan to vote

1. In short, voters are not always aware of what the government is or could be doing, and often they do not know the relationship between government actions and their own utility incomes
2. Political parties (including the one in office) may be uncertain in the following ways:

i. They may not know what decisions the nonpolitical elements of the economy are going to make; i.e. they may be unable to predict the economic conditions with which they must deal in running the government

ii. They may not know how a given government act will affect the utility incomes of voters, even if they know what objective conditions it will produce

iii. They may not know what objective consequences a given government act will have, even if they know how voters’ utility incomes will be affected by every possible set of consequences.

iv. They may not know how much influence any one voter has over other voters

v. They may not know whether voters are aware of what the government is doing and how it affects them, or how much additional information is necessary to make voters thus aware.

vi. They may not know what policies opposition parties will adopt on any given issue. If this type of uncertainty exists, a party will be unable to forecast how voters will react to its own policy, even if it knows the way voters will be affected by that policy and the nature of their utility incomes.

1. Summary
   1. Uncertainty is any lack of sure knowledge about the course of events that may be present in any political decision-making process affecting both parties and voters by controlling their levels of confidence.
   2. When discussing uncertainty, contextual knowledge illuminates the basic causal structure of some field of operations; while information provides current data on the variables significant in that field.

Chapter 6: How Uncertainty Affects Government Decision-Making

*Uncertainty divides voters into different classes and gives rise to persuasion.

1. How Uncertainty Gives Rise to Persuasion
   1. As soon as uncertainty appears, voters decisions become more obscure, some change and some become highly uncertain and susceptible to persuaders.

i. Persuaders are not necessarily interested in helping the uncertain, they want to produce a decision that aids their cause, and therefore only provide facts favorable to the group they are supporting.

1. We assume these “facts” will never be false, but they need not tell the whole truth
2. Only people who have already made up their own minds can persuade others

ii. Persuaders are at one extreme of the uncertainty scale, they are sure what they support is best for them

iii. They are also extremists on the intensity scale, since they are interested enough in one’s party’s victory to proselyte for it.

1. Not all would-be persuaders are voters; parties are obviously persuaders too.

i. Those who are voters we call agitators, i.e. voters who use scarce resources to influence other voters, and are practically immune because persuasion can only be done by providing information, not changing tastes.

ii. Agitators are more interested in seeing their party’s policies enacted, and will invest scarce resources, such as at least time, to agitate

1. Types of Voters Other Than Agitators
   1. Passives (those with a party preference) and neutrals (those indifferent among parties) are voters well informed enough to have made definite and certain voting decisions, but they are not interested in persuading others.

i. They may not have all the facts, but know enough to reach a definite decision and do not deliberately seek further information

1. Many have yet to make up their mind and can be considered baffled (those who haven’t made up their minds); quasi-informed passives (those who have reached tentative decisions favorable to some party); and quasi-informed neutrals (those who have reached the conclusion there’s no real difference between parties)

i. If these voters are still uncertain on election day, only the quasi-informed passives vote

1. Some habitually vote for the same party every election because they were well-informed in the past on the issues and always came to the same conclusion without being challenged

i. One type is a loyalist, who always votes for the same party

ii. The other is an apathetic, who always abstains because he believes his party differential is forever zero

1. The Role of Thresholds
   1. Loyalists will continue voting for a party even if uniformed, unless some conditions change to cross his perception threshold and reconsider
   2. Another example is a baffled who has information leading to a preference large enough to cross his action threshold
   3. If a passive discovers that his party has become large, he may try persuading others to vote as he does after crossing his agitation threshold
   4. These thresholds are crucial to influencing voters if parties can understand each other’s possible thresholds, the threshold must be met at a point where the person will not waiver in judgment after deciding
   5. The Nature and Forms of Leadership in the Model
      1. Wherever men can be influenced, other men appear to influence them

i. In an uncertain world, roads leading toward the good for society are hard to distinguish from those leading away, thus voters approach to solving social problems relies on persuasion’s alterations.

ii. Leadership we define as the ability to influence voters to adopt certain ciews as expressing their own will

iii. Leadership, for our purposes, can only be exercised in an uncertain world, because a certain voter has no need to be told what to do, only organized.

1. Leaders lead mostly for selfishness, though that definition can be broad and call for great self-sacrifice- meant to achieve a benefit of economic political or social means.

i. Political parties are followers as well as leaders, for they mold their policies to suit voters so as to gain as many votes as possible

ii. Interest groups are leaders who try to get government to adopt a policy by claiming to represent voters- implanting views in voters to influence govt.

iii. Favor-buyers are men who wish a party to act a certain way, which benefits them, and will in return influence voters to support that party – money.

1. The Functioning of Intermediaries
   1. Government’s Need for Representatives

i. Because uncertainty is so basic to democracy, government is forced to employ intermediaries between itself and its constituents.

1. Representatives need to be of the people who can simplify the otherwise impossible task of exploring every individual’s utility function.
2. Because individuals vote by comparison, government uses representatives to convince people that its acts are worthy of approval or that they should be replaced.

ii. Uncertainty, therefore, helps convert democracy into representative government, making it more rational for government to be influence by citizenry.

1. Government’s power therefore becomes spread out among many representatives instead of being concentrated, increasing marginal gain of votes
2. The quantity and nature of decentralization depends on communications and serves to take the pulse of the people in each distinct area or group
3. Nongovernment Intermediaries

i. The people representatives are agents for sometimes don’t know what they want, therefore sometimes representatives may actually be lobbyists for a group or organization

1. The government does not care how good or where these decisions come from, only that a majority of voters approve of them, or would if informed
2. The government will want to see a following for these proposals which representatives may misrepresent to the government

ii. The government is interested in the intensity with which each voter holds his opinions, since it must weight the net effect of actions.

1. For example, it will risk imparting an only slight injury to one voter if doing so gives a great benefit to another.
2. Those who come forth to press views upon government are generally more likely to be intensely interested than those who keep silent

iii. The government needs resources to convince people that its policies are good ones and has to defend from the attacks of the opposition parties

1. To acquire money for this, govt can sell favors to men who need govt action, and opposition can sell promises to be delivered when elected.
2. Favor-buying buying is less crude and more subtle than bribery, and sometimes doesn’t include money, but editorial policies or influence
3. Thus, some form of agitation often pays for political favors, and political parties must estimate their influence coefficient (i.e. the numbers by which the favor-seekers’ own votes must be multiplied in calculating their political weight of agitation).
4. The Net Political Effects of Uncertainty

i. Rationality under conditions of uncertainty leads government to construct policies for the few voters than the good of all, or even a majority.

1. As a result, voters in a democracy do not have equal influence on policy formation even though each has only one vote.
2. Possession of resources or active membership in an organization claiming to represent many voters can further augment a voter’s influence.
3. Government cannot rationally regard every voter as being of the same importance because citizens vary in influence coefficients.

ii. Government is swayed more by voters at one time and others at another for particular decisions, but there should be no inequality of total importance among voters

iii. Uncertainty allows the unequal distributions of income, position and, influence – all of which are inevitable – in order to share sovereignty where the only equal distribution of votes is supposed to reign.

1. Summary
   1. Uncertainty divides voters into groups due to their subjectivity to persuaders
   2. Persuaders give rise to political parties, interests groups and favor buyers which can influence policy decisions on a grander scale for technically selfish reasons
   3. Government relies on representative intermediaries to weight out voters’ opinions in decentralized way
   4. Uncertainty forces rational governments to regard some voters as more important than others.

Chapter 7: The Development of Political Ideologies as Means of Getting Votes

*If political parties are not interesting in gaining office or promoting a better or ideal society, why does nearly every democratic party derive itself from policies of some specific philosophy of governing? How do we explain political ideologies?

1. The Role of Uncertainty
   1. Ideologies in a Certain World

i. Since no party can gain by opposing a passionate majority, all parties espouse whatever policies an overwhelming portion of the electorate agree on

ii. Differences between platforms then, must be created to entice voters to the polls

iii. In a certain world, differences are strictly on the policy level, because party platforms would contain no ideological elements.

1. How Uncertainty Makes Ideologies Useful to Voters

i. Voters find party ideologies useful because they remove the necessity of relating every issue to personal philosophy

1. Ideologies help focus attention on differences, instead of needing to understand every policy.

ii. Instead of comparing government behavior and proposals, ideologies allow:

1. Voter making a decision on an ideological basis when he cannot distinguish between parties on an issue basis
2. Voter making a decision by ideologies in order to save himself the cost of being informed about specific issues
3. This behavior is rational as long as there is an actual behavior difference between parties, otherwise voter will lose interest in voting

iii. Unlike the loyalist, the voter who uses ideology differential as a cost-save is called a dogmatist, because he looks at doctrines rather than behavior when choosing a party to support.

1. How Uncertainty Makes Ideologies Useful to Political Parties

i. Each party realizes that some citizens vote by means of ideologies rather than policies, therefore it fashions an ideology it believes will receive the greatest number of votes

1. Wide ideological variance in a vote-maximizing hypothesis is caused by the heterogeneity of society, the inevitability of social conflict, and uncertainty.
2. Each party can ideologically woo only a limited number of social groups, since its appeal to one implicitly antagonizes others.

ii. Party ideologies can remain different only in so far as none is demonstrably more effective than the rest.

1. Uncertainty about effectiveness is necessary for ideological diversity to persist – if everyone knew which type of ideology would win, all parties would adopt it.
2. Party platforms only diverge in the case of the passionate majority that exceeds the threshold for subtlety

iii. Ideologies also help parties cope with the uncertainty by cutting the process of determining what policies will gain votes since each party designs its ideology to appeal to that combination of social groups it feels will product the most support.

1. This removes the necessity of relating each policy decision directly to voter reaction
2. Can be limited because:
   1. The ideology may not be specific enough to lead unambiguously to action-more than one alternative may be ideologically acceptable.
   2. Voters are ultimately interest in actions, not ideologies, so each party must frequently check its actions directly against the voters’
   3. How Competition Among Parties Affects Ideologies

i. Though ideologies provide short cuts for uncertain voters, their subsequent development depends on their relation to policies they stand for, not the same uncertainty

1. Ideologies must be integrated with policies closely enough to form accurate indicators of what each party is likely to do in the future.

ii. The major force shaping a party’s policies is competition with other parties for votes.

1. Competition determines the content of party policies, and also their stability and relation to the party’s public statements.
2. Competition also determines whether parties will be responsible and honest.
3. Reliability, Integrity, and Responsibility
   1. The Role of Reliability and Responsibility in the Model

i. A party is reliable if its policy statements at the beginning of an election period-including those in its pre-election campaign- can be used to make accurate predictions of its behavior (or its statements if not elected) during the period.

1. Thus a party which always does the exact opposite of what it says it will do is reliable even though it is not honest

ii. A party is responsible if its policies in one period are consistent with its actions (or statements) in the preceding period, i.e., if it does not repudiate its former views in formulating its new program.

1. The Necessity for Reliability and Responsibility in Politics

i. Absence of reliability means that voters cannot predict the behavior of parties from what the parties say they will do, while absence of responsibility means party behavior cannot be predicted by consistently projecting what parties have done previously.

1. When both are absent, the only possible basis for prediction is an inconsistent relation between the past and future actions of each party.
2. If each party caters to a particular social group, its future services to the group will not conflict with its past ones as long as the group’s interests are stable.

ii. When parties are responsible but lack reliability, voters will ignore all party statements.

1. Hence, some systematic relationship between a party’s statements and its subsequent actions is necessary for rational voting

iii. The converse case occurs when parties are reliable but no responsible.

1. In this case, voters depend solely on what parties say they are going to do, not on what they have done, to predict what they will do.
2. A persistent relation need exist only between promises and behavior, not between the actions of one period and those of the next.

iv. Reliability is a logical necessity in any rational election system, and responsibility – though not logically necessary, is strongly implied by rationality as we define it.

1. How Each Party’s Motives Cause it to be Honest and Responsible

i. Citizens vote to influence government and are only interest in each party’s statements insofar as they serve as guides to the policies to be carried out, but actions in office are a better guide than statements.

1. Opposition parties must be reliable because they don’t have governing acts for voters to consider since the last time they were in office.
2. If an opposition party is not reliable, it will be unable to gain the confidence-and votes- of citizens
3. Parties are forced to be reliable in office because they must be prepared to be an opposition party if necessary - unreliable parties in office will be unreliable in opposition, which will detract votes

ii. Party’s reliability is quite likely to be integrity- where policy statements at the beginning of an election period are reasonably borne out by its actions during the period.

1. Integrity is the most efficient form of reliability- it is the simplest relation between statements and true intentions for voters to predict future behavior.
2. Because voters rationally prefer parties that are honest to those which are not, competition tends to force all parties towards honesty.

iii. The same force also causes parties to exhibit responsibility.

1. Even if a party is not honest, it will probably try to carry out promises made in its campaign because they want to maximize votes, and these promises were effective in doing that.
2. Therefore, the party is likely to stick to these promises in its next campaign too, making adjustments to fit any changes circumstances

iv. Conversely, desire to get rid of a loser puts opposition parties under pressure to alter their promises.

1. If they lost by an overwhelming vote, this pressure may cause drastic irresponsibility, but a close vote may have more pressure to stick to platform – the party will eventually re-establish equilibrium
2. If a party frequently adopts new policies inconsistent with old ones, voters will suspect that it cannot be trusted to carry put any long-range policies at all
3. Every party will be responsible as changing circumstances permit, unless policies are forcefully rejected by nearly all voters.
4. Ideological Coherence and Stability
   1. Any responsible and reliably party will have a pretty coherent and immobile ideology. Their policies will not change overnight, only slowly in their nature.
   2. Because parties want to appeal to as many voters as possible, no party makes its ideology adhere too rigidly to any one group or philosophic outlook.

i. At the same time, its policies are not an unorganized jumble

1. The need for stability causes changes in policy to rationally lag, as it is seen as more responsible

i. Parties usually shift leadership before shifting in platform

ii. Struggles within a party are somewhat similar to the conflict between parties

1. Conflicts Between Ideologies and Vote-Getting
   1. According to our basic hypothesis, parties seek as their final ends the power, income, and prestige that go with office
   2. Even when an organization is created to serve one specific purpose it develops other purposes connected with its survival and with the prestige to be gained from operating it.
   3. We contend that the desire to obtain and keep power plays a larger role in the practical operation of democratic politics than the desire to implement ideological doctrines or serve particular social groups.
   4. Summary
      1. Uncertainty restricts voters ability relate every govt act to his own view of good society, therefore utilizes ideologies to cut cost of obtaining all information.
      2. Ideologies assist both voters and parties in gathering information, organizing policy decisions, and gathering support.

i. Parties, however, must have a consistent ideology for its actions and policies to make rational voters support them.

ii. To win votes, all parties are forced by competition to be relatively honest and responsible in regard to policies and ideologies.

1. Ideologies are stable because they must change gradually and slowly over time, though they must remain current and efficient or lag can cost a party votes.

i. Though there may seem to be conflict between maintenance of ideological purity and winning voters, holding office is always first.

Chapter 8: The Statics and Dynamics of Party Ideologies

*If political ideologies are truly about obtaining votes, what predictions can we make about how ideologies change in content as parties maneuver to gain power based on the distribution of voters’ preferences?

1. The Spatial Analogy and Its Early Use
   1. In the spatial analogy, we assume that political preferences can be ordered from right to left in a manner agreed upon by all voters.
   2. We also assume that every voter’s preferences are single peaked and slope downward monotonically on either side of the peak

i. For example, if a voter likes position 35 best, we can immediately deduce that he prefers 30 to 25 and 40 to 45

1. Hotelling assumed that people were evenly spaced along the straight-line scale, and reasoned that competition in a two-party system would cause each party to move towards its opponent ideologically.

i. Such convergence would occur because each party knows that extremists at its end of the scale prefer it to the opposition, since it necessarily closer to them than the opposition party is

ii. Therefore, the best way for it to gain more support is to move toward the other extreme, so as to get more voters outside of it- i.e. to come between them and its opponent

1. The Effects of Various Distributions of Voters
   1. In Two-Party Systems

i. Voters will converge rapidly upon the center and some will be lost to extremes

1. If voters preferences are distributed so that voters are massed bi-modally near the extremes, the parties will remain poles apart in ideology
2. The possibility that parties will be kept from converging ideologically in a two-party system depends upon the refusal of extremist voters to support either party if both become alike.
3. As long as there is difference between parties, extremist voters would be forced to vote for the one closest to them, no matter how distasteful its policies seemed in comparison to those of their ideal.
   1. Uncertainty increases the possibility that rational extremist voters will abstain if the party nearest them moves toward its opponent

ii. Democracy creates chaos because elected party tries to implement polcies radically opposed to the other party’s ideology

1. Even a party formed in the center would move toward one extreme or another to increase its votes, since there are few moderate voters
2. Extremely radical oppositions requiring policy implementation by force leads to revolution.

iii. Under more normal circumstances, in countries where there are two opposite social classes, numerical distribution is more likely to be skewed left towards working class versus upper class.

1. The Number of Parties in Equilibrium

i. Parties do not move ideologically past each other. While other parties can be introduced, equilibriums will not allow a party to rise sucessfuly if the limit for parties is reached.

1. Whether the political system contains two or many parties in equilibrium depends upon (1) the nature of the limit upon the introduction of new parties and (2) the shape of the distribution of voters.
2. Winner-takes-all outcome of plurality electoral structure tends to narrow the field to two competing parties.

ii. The number of parties in existence can also mold the political views of rising generations, thereby influencing their position on the scale

iii. If a proportional representation system is established in a society where the distribution of voters has a single mode and a small variance, it is possible that only two parties will exist in equilibrium because there is not enough political room on the scale for more than two significantly different positions to gain measurable support.

1. In Multiparty Systems

i. Multiparty systems are likely to occur whenever the distribution of voters is polymodal.

1. However, not every point can support a party if we assume that the electoral structure allows only a certain number of parties to compete for power with reasonable chances of success.

ii. In multiparty systems, parties will strive to distinguish themselves ideologically from each other and maintain the purity of their positions; whereas in two-party systems, each party will try to resemble its opponent as closely as possible.

iii. Because voters in multiparty systems are given a wide range of ideological choices, regarding ideologies as a decisive factor in one’s voting decision is usually more rational than in a two-party system.

1. The Origin of New Parties
   1. The birth of new parties comes from designing parties to win elections and when originators can represent a large number of voters whose views are not expressed and to influence already existent parties to change their policies or not to change them; this is not aimed at winning elections.

i. Parties are never begun by people who think it will never get votes or win offices, but rational men will found them as threats to other parties

1. No party, new or old, can survive without gaining the support of a sizeable fraction of the electorate – a support active enough to be expressed by votes in an election

i. New parties are more likely to survive when there is an opportunity to cut off the support of an older party by sprouting between it and its voters

1. Whenever such a radical change in the distribution of voters occurs, existent parties will probably be unable to adjust rapidly because they are ideologically immobile.
2. New parties are not weighed down by ideological immobility, therefore they can select the most opportune point on the scale at which to locate, and structure their ideologies accordingly.
3. Opportunity to compromise with shifting in the universality of views also gives chance for a party to rise

ii. Party ideologies are relatively immobile in multiparty systems; so this type of new party will appear almost exclusively in two-party systems.

1. Ideological Coherence and Integration
   1. Alteration of our Model to Include Multipolicy Parties

i. Party’s ideology will be coherent buy not integrated, it will not contain internal contradictions but neither will it be too closely tied to any one philosophy.

ii. Party’s want to have a strong appeal to each individual voter, using a wide range of policies

iii. Different voters may apply different weights to individual policies, since each policy affects some citizens more than others.

1. Therefore parties have no unique, universally recognized net position
2. The rational party strategy, then, is adopting a spread of policies that cover a whole range of the left-right scale.
3. Voters then judge both the net position of policies against its spread or variance to decide if he wants to support it.
4. Integration Strategies in Two-Party and Multiparty Systems

i. The degree of integration in a party’s ideology depends upon what fraction of the scale it is trying to cover with its policy spread.

ii. If supporters range in viewpoint from those at one extreme to those at dead center, it must design a policy spread that includes all of them.

1. If there are more voters in the middle than at the extremes, each party structures its policies so that its net position is moderate, even though it makes a few concessions to the extremists.
2. If the policy span of a party is much narrower, an attempt to widen it could cause a collision with another party. Therefore, spreads are restricted.
3. Overlapping and Ambiguity in Two-Party Systems

i. Overlapping in two-party systems can convince voters that its net position is nearer to a certain party because voters assign different weights to the same policies

1. In the middle of the scale where most voters are massed, each party scatters its policies on both sides of the mid point attempting to make each voter in this area feel that it is centered right at his position.

ii. Clearly, both parties are trying to be as ambiguous as possible about their actual net position.

1. Ambiguity thus increases the number of voters to whom a party may appeal
2. Since parties find it rational to be ambiguous neither is forced by the other’s clarity to take a more precise stand.

iii. Despite ambiguity, parties are generally forced by competition to be much less than perfectly clear about what they stand for.

1. This causes voters to make more decisions based on non-issues such as personality, tradition, looks, etc.

iv. There is, inherently then, a conflict between party rationality and voter rationality in a two-party system.

1. Fundamental Tension in Our Model

i. Parties and voters want different things but both want a continuance of the system, but any man will seek his own good and to get it will sacrifice the good of others, if necessary

1. For example, if any party believes it can increase its chances of gaining office by discouraging voter from being rational, its own rational course is to do so.
2. The only exception to this is when voter irrationality is likely to destroy the political system.

ii. Voters have two defenses against being forced into irrationality

1. Limit the operations of parties by law, forcing financial reports etc.
2. Change the political system from two party to one party, causing a narrowing spread of policies and more differentiation and clearness

iii. Voters and Parties are contradictory, but one must not completely dominate the other fully

1. A Basic Determinant of a Nation’s Politics
   1. Basic determinant of a national politics is the distribution of voters along the political scale.

i. Number of modes in the distribution helps determine whether the political system will be two-party or multiparty, and how similar or different they will be

ii. It also determines the mass of voters will be centrally conglomerated or lumped at the extremes with low density in the center.

iii. The distributions stability also determines whether new parties will constantly be replacing the old, or the old will dominate and new ones merely influence their policy.

1. The distribution of voters is a crucial determinant molding a nations political life

i. Major changes in it are among the most important political events possible

ii. Though parties will move ideologically to adjust to the distribution under some circumstances, they will also attempt to move voters toward their own locations, thus altering it.

1. Summary
   1. Spatial analogy for distribution of voters helps analyze political ideologies by adding to it (1) variable distribution of population, (2) an unequivocal left-to-right ordering of parties, (3) relative ideological immobility, and (4) peaked political preferences for all voters

i. Parties converge ideologically upon the center, but fear of losing extremist voters keeps them from becoming identical

ii. Constant voter distribution tends to move towards an equilibrium

1. Number of political parties depends upon (1) the shape of the distribution and (2) whether the electoral structure is based on plurality or proportional representation.

i. No tendency toward imitation exists in a multiparty systems, instead, parties strive to accentuate ideological “product differentiation” by maintaining purity of doctrine.

ii. New parties are usually intended to win election, but can be important simply in influencing policies of an existing policy.

iii. Since old parties are ideologically immobile, they cannot adjust rapidly to changes in voter distribution.

1. Parties in a two party system have a much wider spread of policies and overlapping to resemble each other.

i. This tendency works to deliberately equivocate about each particular issue.

ii. Fostering ambiguity is the rational course for each party in a two-party system.

1. Distribution of voters along the political scale determines national policy, whether the nation will have two or many major parties, whether democracy will lead to stable or unstable government, and whether new parties will continually replace old or play only a minor role.

Chapter 10: Government Vote-Maximizing and Individual Marginal Equilibrium

*Government allocation has a tremendous impact upon the private sector, what propositions can we make about this impact?

1. Resource Allocation in a Free Market
   1. Planning in the Private Sector

i. Rational resource allocators in the private sector follow the general rule of applying inputs to those activities with the highest net marginal rates of return, thereby maximizing total net returns

1. Returns are not always immediate, therefore the return must be seen as a stream of many incomes, each associated with a different time period.
2. All future incomes are subject to discounting when compared to present ones, and the rate of discount is compounded as the income’s accrual period becomes farther away from the present.
3. Planning for net pay-offs with the highest present value requires extremely accurate and detailed information about present and future costs and pay-offs, the planning agent must deal is some form of homogenous quantity such as utility, profits or welfare, and the fact that future pay-offs are discounted in rational planning.
   1. Future income is discounted because the course of future events is less certain than that of present events; therefore an allowance for risk must be added to future income
   2. Also, people prefer enjoyment to prospects for future enjoyment; therefore they must be induced to abstain from the former by a bonus added to the latter
   3. If the current profit rate is positive, a continuous reinvestment of present returns will cause a build-up of capital; therefore a present investment that pays off only once in the distant future must do so at a higher rate than those which pay off sooner.
   4. Every planning agent in the private sector uses a discount rate appropriate to its own circumstances.

ii. Capital flows rationalize the market, in the sense that they allow any risky investment to be made if it pays off enough to survive any investor’s discount rate, even if that investor has no direct interest in the particular activity he finances.

1. This process is extremely important because it insures that all the highest-paying investments are made and the lowest-paying ones are not made- i.e. it makes resource allocation rational
2. The mechanism that affects this rationality is a market in which each individual can buy or sell personal prerogatives.
3. If we assume the usual competitive conditions, the market has reached a Paretian optimum, i.e. no transactions between private parties can make someone better off without harming someone else.
   1. Attainment of such a position is possible only because all economic agents are free to sell their prerogatives if they wish.
   2. Our stress on the exchangeability stems from the fact that in politics a man cannot sell his vote or buy votes from others. This differentiates government planning from private planning in a significant fashion.
   3. Obstacles to the Attainment of Paretian Optimum by a Free Market

i. A collective good is one which provides indivisible benefits; i.e. as soon as it exists, everyone is able to benefit from it regardless of whether he himself has paid for it and regardless of how many other are also benefit from it.

1. Where citizens are numerous, each man finds it advantageous to refuse to pay for such indivisible benefits. Instead he assumes others will bear the costs and he will still benefit. In a free market, no one bears any of the costs and none of the benefits are forthcoming.
2. This situation means that voluntary action cannot produce a Paretian optimum in a large society when collective goods exist.

ii. Since coercion makes each citizen pay for collective goods and therefore better off than he would be in a free market, and since every citizen is rational, everyone will agree to be coerced.

1. Hence, government action embodies voluntary coercion that allows society to reach a Paretian optimum even though collective goods exist.
2. What each citizen needs is a guarantee that all will pay their fair shares if he pays his- government coercion provides that guarantee.
3. Government Planning and Individual Marginal Equilibrium
   1. The Relation Between Government and Discounting

i. Unlike private planning agents, governing parties are never interested per se in future returns from action; they are always concerned only about the next election and the votes they receive therein.

1. Hence no government aims at maximizing a stream of incomes composed of separate incomes for each of many periods. Rather it always organizes its actions so as to focus on a single quantity: its vote margin over the opposition in the test at the end of the present election period.
2. Governments, however, are vitally concerned with the effects of their actions on future utility incomes of voters, since voters often decide how to vote on the basis of the prospects for such future incomes.
3. However, a government cannot trade present votes for future votes the way a voter can trade present income for future income.

ii. In competitive equilibrium, every voter discounts his future income at the same rate as every other voter because the market tends to equalize marginal rates of return both interspatially and intertemporally.

1. The governments handling of money is based on signals it receives from citizens as owners of votes, not as receivers of money incomes.
2. Government can impose its decisions about manipulating money and utility upon these agents by force; whereas they canot do the reverse.

iii. The government can operate freely in the currency that interests money-seekers, but money-seekers cannot operate freely in the currency that interests the governments.

1. No citizen is allowed to trade his political privileges for increased economic rights, or vice versa; i.e. no one can legally buy or sell votes for money.
2. How Government Acts May Prevent a Paretian Optimum in a Certain World

i. It is clear that whether or not society reaches a Paretian optimum is entirely dependent upon government action.

1. In the first place, even a perfectly competitive market cannot reach an optimum position without government intervention if collective goods or certain nonmarket interdependencies.
   1. Government can always prevent a Paretian optimum by failing to take the necessary optimum-furthering actions, called negative blocking
   2. If government carries out the required optimum-furthering actions connected with collective goods and nonmarket interdependencies, it may still block attainment of an optimal position by carrying out some other optimum-distorting action.
      1. Mainly carried out through deliberate redistributions of income called positive blocking.
      2. At first glance, we would expect a rational government never to indulge in negative blocking; there are several reasons why a democratic government might engage in it.
         1. First is the technical impossibility of handling indivisible goods in such a way as to reach an optimal position- it cannot infallibly judge every individual’s income-earning potential
         2. Political parties are not interested in making society’s allocations of resources efficient; only maximizing the number of votes it receives.
         3. Competition for votes does not move society into an optimal position,
         4. Because the opposition can defeat the incumbents with either an optimal or a suboptimal position, whether society arrive at a Paretian optimum is largely a matter of chance.
         5. Effects of Uncertainty Upon Attainment of an Optimal Position

i. When uncertainty exists, the private sector is not likely to reach a Paretian optimum even if there are no collective goods or nonmarket interdependencies. Most of the reasoning of general equilibrium of perfect competition relies on the assumption of certainty.

1. Uncertainty is the main technical obstacle that prevents government from handling collective goods so as to reach a Paretian optimum, assuming the private sector has somehow done so regarding private goods.
   1. When perfect knowledge is absent – as in fact it always is – the government cannot help but negatively block attainment of an optimal position
   2. Because no party knows which social states are optimal or in what way various states dominate each other, interparty competition does not guarantee a Paretian optimum even when all parties reveal their proposals at once.
      1. Each party is forced to guess about both optimality and dominance, and odds are that no party’s guess is an optimal position, lowering their incentive to even seek optimal positions.
      2. Uncertainty reduces the ability of the winning party to carry out its promises completely.
      3. Uncertainty may cause citizens to oppose giving government the powers necessary to achieve optimal states because they fear the use of such powers will create a precedent that might be employed against them in the future.

ii. If enough certainty prevails to rule out political influence, money is powerless to influence voters.

1. Government cannot make discriminatory bargains with voters for votes because it lacks knowledge about the preferences of individual citizens to be able to discriminate accurately or inexpensively.
2. Fear of setting a precedent may prevent voters to discriminate individually even if it could – therefore distribution of votes and money income will not be integrated.
3. A Hypothetical Vote-Selling Market

i. In a large election, a rational voter knows his vote alone will not be very decisive, and therefore he will be willing to sell his vote for a very low price if vote selling is legal, since money is definitely of value to him.

1. If there is a market for vote selling, we assume those desiring power will be in keen competition, so that the price of votes will be drive well above the reservation price of a majority of citizens.
2. If any open vote market exists, high-income groups will dictate government policy.
3. When low-income groups get tired of being discriminated against by government policy, they can band together as a collective-bargaining unit and, by doing so, raise the probably that their votes will be decisive.

ii. The rational voter will sell his vote if he is indifferent about what policies government adopts.

1. If policy control is more important to low income receivers than the money they can get y selling their votes, then their best course is to get vote-selling prohibited
2. Enforcing the equality of franchise and the prohibition of vote-selling is the most efficient way for low-income groups in society to assure themselves of having influence over government policy

iii. In the terminology of welfare economics, a movement can be unequivocally called good if it makes someone better off and no one worse off. Since vote-selling markets will make someone worse off we can not say society would be made better by such a market

1. The market only makes everyone better off if
   1. No vote-seller receives a bribe smaller in utility value to him than the utility loss he experiences from the total alterations in policy,
   2. No vote-buyer pays in bribes an amount larger than the gains he experiences from the alterations in policy mentioned in (a) and
   3. Everyone who is neither a vote-seller nor a
   4. Vote sellers are unlikely to create a bilateral monopoly of votes in the free market since various vote-buyers have quite different policy preferences.

iv. In short, a Paretian optimum is never reached in a democracy

1. The Impact of Indivisibly and Its Technical Causes

i. Each voter receives a total utility income from government activity, and a marginal income from the marginal government dollar.

1. There is no reason why a total income from government need exceed or equal the cost of those acts since a man will stay as long as total utility income from governmental activity exceeds the total cost to him of all such activities.
   1. In the private market, a rational man regulates his whole economic life, equating marginal returns with marginal costs, maximizing net income, however government assigns to its citizens obligatory costs that the citizens can only vary within narrow limits.

ii. The type of compulsion exercised in the public sector is quite different from that in the private sector.

1. Private transactions are easy to move in and out of with an individual, while the public sector means dealing with the government and dealing in ways specified by the government, not the citizen.
2. The chief activities of government yield certain indivisible benefits,
   1. Since everyone is a potential gainer from these benefits, they cannot be allocated to individuals and must by paid for, such as police protection, a court system and defense.

iii. Problems of cost allocation might be easier to solve if it were possible to measure an individual’s benefit income accurately, but much benefit income from government action is purely psychic.

1. Even if there was a way to measure benefits, the government would still have to enter into negotiations with each citizen to discover the size of his benefit income, which would be too expensive
2. But even still, government cannot allocate costs in proportion to benefits even if it wishes to do so.
3. The indivisibility of benefits prevents it from selling government services in a free market on a quid pro quo basis.
4. Income Distribution as a Cause of Blocked Marginal Equilibrium

i. The government’s best interest would probably lie in deliberately refusing to make the individual bargains necessary reaching equilibrium.

1. Because the government has the power to redistribute income, it is in a better position to obtain votes by doing so after creating hostility

ii. If the government knew precisely how every citizen would react to any proposals made, it could conceivably plan a tax-benefit structure that would redistribute income from rich to poor without causing either a drop in total output or an upset in individual marginal equilibria.

1. In reality, any large-scale tax-benefit structure at all prevents a Paretian optimum, and any redistributive effects have some repercussion on total output.

iii. There are two other ways in which uncertainty prevents the government form redistributing incomes until they are the same for all men

1. First, uncertainty allows low-income citizens to believe that someday they too may have high incomes
2. Second, uncertainty creates more and less influential voters; i.e., it alters the distribution of voting power to one that is not equal.
3. Recapitulation and Conclusions
   1. Several conditions prevent most agents from equating their marginal returns from government action to their marginal cost thereof

i. Equal distribution of votes among citizen, which may be offset in conditions of uncertain with unequal distribution of influence for high-income

ii. Unequal distribution of incomes arranged so that only few receive high incomes

iii. The ability of govt to force citizens to give it some of their resources through taxes

iv. The fact govt acts to maximize votes but its actions have repercussions on individual utility incomes, and individuals and government coerce in different ways

v. Technical impossibilities of measuring individual benefit incomes objectively

vi. Prohibition of purchase or sale of voting rights

vii. Governments lack of perfect knowledge about the utility functions and innate abilities fo citizens

1. Vote maximizing nature leads government to redistribute to most numerous income groups – low income groups
2. We can make the following general conclusions:

i. Democratic govt policies tend to favor low-income receivers as a class

ii. Consequently, because the free market produces unequal distribution of income, the more effective democracy comes and government interference with economy

iii. Uncertainty and costliness of information redistribute political power so as to offset the economic leveling tendency of democracy

iv. Therefore, the great degree of uncertainty in politics, the more likely government is to be smaller than in a perfectly informed democracy

v. Rational govt planning may simultaneously maintain enormously varying rates of discounted utility return at the margins of action

vi. The economy is always at a suboptimal position, because political bargains made to reach optimum may jeopardize political freedom.

1. Summary
   1. In the private sector, resources are allocated to those of highest net marginal return. A vote maximizing government, however, upsets this marginal equilibrium by imposing obligatory costs upon some.
   2. The difference between the distribution of votes and distribution of incomes gives government an incentive to maintain net drains and gains at individual utility margins

i. A rational government may simultaneously carry out projects with widely varying rates of utility return without reallocating its resources from the lowest returns to the highest

ii. This means there will always be a possible Paretian optimum that cannot in practice be reached.

1. Government’s desire to equalize returns on its vote-income rather than on voters’ utility income margins causes it to use for to implement its desires, which private decision makers cannot do.

Part III: Specific Effects of Information Costs

Chapter 11: The Process of Becoming Informed

*A basic step towards analyzing what political decision-making is like when uncertainty exists in analyzing the economics of becoming informed.

1. The Role of Information in Decision-Making
   1. The Decision-Making Process and its Costs

i. A rational voter must have contextual knowledge to make informed decisions, including (1) what his goals are, (2) what alternative ways of reaching those goals are open to him and (3) the probably consequences of choosing each alternative.

ii. The time to assimilate data and weight alternative is considered a cost of information, divided into two major classes

1. Transferablecosts can be shifted from the voter onto someone else. We separate transferable costs into three types.
   1. Procurement costs are the costs of gathering, selecting, and transmitting data
   2. Analysis costs are the costs of making factual analysis of data
   3. Evaluative costs are the costs of relating data or factual analyses to specific goals
   4. Nontransferable costs must be borne by the voter himself, such as making an actual voting decision

iii. This delegation is rational because it allows the voter to make use of economies of scale and the expert knowledge of specialists.

1. The Necessity and Nature of Selection Principles

i. Regardless how much information is available, the amount a rational decision-maker can employ for any one decision is limited because (1) the human mind can only encompass a limited amount of information at once, and (2) assimilating and evaluating data take time, which is scarce under pressure

ii. There are also costs to acquisition or use of information besides the time involved

1. Pressure increase upon the decision-maker to reduce the number of data they use
2. Thus there is also a necessity to select data, and data selection has a potentially enormous influence upon decisions

iii. All information is technically biased because it is a selection from all data available, but data is selected by principles

1. How Selection Principles are Chosen Rationally
   1. Because of division of labor, most citizens in modern democracies rely on specialized agencies to gather, interpret, and transmit information they need for decision-making

i. Rationality decrees that voters select reporters who provide them with versions of events that closely approximate the versions they would formulate themselves if they were witnesses

1. A man’s selection principles are rational if application of them provides him with information that is useful for making decisions bring a social state his prefers.

i. Obviously, men prefer widely varying social states, so no one set of selection principles suits all men.

ii. Testing certain reporters views and selections principles is imperfect, because much of it is necessarily hypothetical matching

iii. A voter can double check the accuracy of his selected agencies of information by comparing them to other agencies that fit his selection principles

1. The Quantity of Information it is Rational to Acquire
   1. Information is used as a means to some decision-making ends for production decisions, consumption decisions and political decisions.

i. The information-seeker continues to invest resources in procuring data until the marginal return from information equals its marginal cost. At that point, assuming decreasing marginal returns or increasing marginal costs or both, he has enough information and makes his decision.

ii. The decision-maker already starts with a certain minimum of information, such as a situations general context.

1. Three factors determine the size of a voter’s planned information investment.

i. Value to him of making a correct decision as opposed to an incorrect one

ii. The relevance of the information to whatever decision is being made

iii. The cost of the data

1. Many rational citizens obtain practically no information at all before making political decisions; hence their behavior may differ greatly from what we have described and still be rational.
2. The Need for Focusing Attention
   1. The first step in determining the value of being correct is discover of what outcomes are possible and what the differences between them are; because this requires immense efforts, voters should follow a priority focus system

i. Focus on areas of decision in which opposition parties contest the policies of the incumbents and offer alternative policies

ii. Focus on areas of decision in which the presently governing party changed the government’s method of reacting to, or handling, situations

iii. Focus on areas of decision in which the situations to which the government must react are markedly different from those extant under preceding governments.

1. Characteristics of a Rational Information System
   1. A rational system of information acquisition will have the following characteristics

i. The data reporters in it use principles of selection as nearly identical to his own as possible

ii. It is broad enough to report anything of significance in the differential areas, yet narrow enough to cull out data not wroth knowing about.

iii. It provides him with enough information about each issue for his decisions, given his desire to invest in information

iv. It has sufficient internal plurality so that its parts can be used as checks upon each other’s accuracy and deviation from his own selection principles.

1. The creation and maintenance of this system absorbs resources, therefore the extent of the system depends a great deal upon the nature of the returns.
2. Summary
   1. Decision-making is a process that consumes time and resources, so decision-makers select only part of the information available in making choices.

i. The principles of selection they use depend upon the end for which the information is the means, and all information is biased by its very nature of being selected

1. In a complex society, information is gathered, transmitted and analyzed by others.

i. Information users must be sure analyzers share the same principles of selection he has, or know how their principles differ

ii. Choosing principles is difficult, but by trial and error the rational citizen can find one that best serves his political ends, but must be checked occasionally.

1. Each citizen decides how much information to acquire by utilizing the basic marginal cost-return principle of economics.

i. Information is valued on whether or not it will be useful in making a certain decision.

ii. Decision-makers seek information sources that focus their attention upon certain relevant areas of knowledge.

1. To be rational, their system of personal information-acquisition should have the proper bias, be well focused, provide adequate but not superfluous data, and contain some internal plurality.

Chapter 12: How Rational Citizens Reduce Information Costs

*Rational citizens in an uncertain world are under pressure to cut down resources used to obtain political information, how can they effectively reduce data and what effect does this have?

1. The Free Information System
   1. The Nature and Sources of Free Information

i. Every society provides members with free flow of information about a variety of subjects, however nothing completely costless when accounting for time and opportunity cost, which is nontransferable

ii. Citizens in a democracy normally receive free political information in the following ways:

1. The governing party publishes large amount of information as an intrinsic part of its governing activities
2. All political parties, including the one in power, put out partisan information for the purpose of influencing voters
3. Professional publishers distribute some information that is wholly subsidized by advertisers (e.g. throwaways, TV programs)
4. Interest groups publish information gratuitously in order to persuade citizens to accept their viewpoints.
5. Other private citizens provide free data in the form of letters, conversations, discussion groups, speeches, etc.
6. Entertainment sources sometimes yield political information as a surplus benefit from what is intended as an entertainment investment (e.g. the newsreel in a motion picture theatre). Some citizens also seek straight political information purely for its entertainment value because they enjoy political rivalry and warfare. Any strictly political values they get are consumer-surplus by-products of the entertainment.
7. Similarly, information acquired in the course of making production or consumption decisions may have political value. Since this value is incidental to the purpose for which the data is obtained, it can be regarded as a free benefit.

iii. Free political information acquired from these sources is either accidental or sought-for.

1. Not all citizens receive the same amount of free data, nor are those who do receive the same amount equally able to make use of it.
2. The main role of free information in our model is acting as a floor for all types of rational calculations.
3. The Amount of Free Data Citizens Receive

i. The most important determinant of how much free information a voter receives is his ability to bear the nontransferable costs inherent in all information.

1. Men of leisure have the greatest time opportunity to assimilate free data.
2. Access to free-information channels also rises with income.

ii. Another factor influencing the amount of free information a man receives is the nature of his informal contacts, both at work and during leisure hours

1. The kind of data he obtains trough these contacts varies with his social class and percentage of contacts that vary across social classes.

iii. Information obtained also varies with the type of entertainment information men seek (i.e. reading history as a hobby versus comic books)

iv. Finally, the extent to which government action directly affects men determines the amount of free information they receive as a part of the governing process.

1. Men who deal with the government in a business, or are members of it, are automatically informed about at least some of its political decisions.
2. How Attention is Focused by Information Providers
   1. Professional Data-Gatherers and Publishers

i. Report information regarding differential areas or changes in the situation worth knowing about.

1. Interest Groups

i. Focus their information output upon policies that seem about to change, whether they favor or oppose these changes.

1. Political Parties

i. All information is relevant and pertinent to its goal of winning elections.

1. The Government

i. Government must distribute data as a part of government

1. Information for voter decision-making
2. Focused on differential areas of action
3. Only by maintaining these connection can a citizen gain any focusing benefits from it, since he will he gain information on govt action
4. How Rational Citizens Reduce Their Data Costs
   1. The Problem and its Basic Solutions

i. Voter seeks to reduce investment required to receive political information

1. Reduce the quantity of information he is receiving
2. Receive same amount of information but reduce its procurement cost
   1. Utilize more free information
   2. Accept subsidies for these costs whenever possible
   3. Maintain the same information flow into his political decisions but delegate part of the making of those decisions to other by
      1. Using expert advice to reduce analysis costs
      2. Employing others’ explicit value judgments to reduce evaluative costs
      3. The Shifting of Procurement Costs

i. Our expectation is that rational citizens will seek to obtain their free political information from other persons if they can to cut procurement costs

ii. The second way to cut procurement costs is to utilize partially subsidized information

1. Drawback may be that selection principles embodied in the data may differ from those of the decision-maker
2. Unless his won selection principles coincide with those of the data providers, this sacrifice may completely offset his economic gain.
3. Delegation of Analysis and Evaluation as a Means of Reducing Costs

i. Division of labor help non-experts make specialized decisions in society such as military policy.

1. Though shifting analysis of facts onto experts reduces the cost of such analysis tremendously, some cost still remains. The citizen himself must pay it.

ii. To be rational, an evaluative delegator must personally determine whether the agent he selects (1) has similar goals to his won, (2) possesses more data than he himself does, and (3) has powers of judgment that are, at worst, not so inferior to his own that they offset the advantages of better information.

1. Persons
2. Interest Groups
3. Professional experts
4. The Relation of Delegation to the Returns from Information

i. It may be rational for a man to delegate part of all of his political decision-making to others, no matter how important it is that he makes correct decisions.

ii. A rational voter who is not a party official cannot assume members of any party have goals similar to his own, and cannot delegate to political parties.

iii. The only exception is: if a voter believes a certain party will seek to maximize votes by catering to the desires of a specific interest group, and his own goals are identical with the goals of this group, he can rationally delegate political decision-making to the party.

1. However, he must investigate policies in order to discover such identity between the two, therefore incurring information costs anyways
2. The Differential Power Impact of Information
   1. Variations in Ability to Use Political Data

i. Ability to use political information received depends primarily upon three factors:

1. The time he can afford to spend assimilating it
2. The kind of contextual knowledge he has
3. The homogeneity of the selection principles behind the information with his own selection principles

ii. Education is the primary source of contextual knowledge, however, it need not be formal education

iii. Since mass media of communication in many democracies are own or dominated more by high-income interests than low-income ones, low-income citizens are more likely to receive data selected by principle conflicting with their own than are upper income groups.

1. The Cost of Information and Equality of Political Influence

i. In a society marked by uncertainty and extensive division of labor, the cost of information is bound to be different for every man, thus information levels are varied

ii. Division of labor places men in different social locations with lack of perfect knowledge, which prevents each from communicating his specialized knowledge to others without costs.

1. Therefore, any concept of democracy based on an electorate of equally well-informed citizens is irrational
2. Therefore, the foundations of differential political power in a democracy are rooted in the very nature of society.

iii. All information is costly; therefore, those with high incomes can better afford to procure it than those with low incomes.

1. This fact further distorts operation of the principle of political equality – the principle that lies at the heart of democratic theory.
2. Summary
   1. Every society provides its members with a stream of information free from transferable costs, though not all citizens receive the same amount of free political data

i. Rational voters will try to reduce personal data-procurement costs

ii. In complex cultures, an essential part of political decision-making is delegation to others

1. Even if men received the same of data, not all could it with equal efficiency

i. Division of labor and uncertainty guarantee rational men will be political informed to different degrees, thus the foundations for inequalities of power are inherent in democratic societies.

Chapter 13: The Returns from Information and their Diminution

*Citizens acquire political information largely to decide how to vote and form opinion, what additional propositions can we make about the use and obtainment of such information?

1. Acquiring Information for Voting
   1. The Role of the Party Differential

i. A rational man votes because he would rather have one of these parties in office than any others, the margin of such preferences is his party differential

1. If a voter is indifferent, his party differential is zero
2. If he has spent time in absorbing any data, the cost of political information is never zero

ii. Discovering one’s party differential is identical to voting

1. The first step is estimating by (1) means of free information, which one absorbs in daily living or (2) means of data obtained in an exploratory investment made just for this purpose.
2. Information Bits and Their Use in Decision-Making

i. A rational voter is interested only in information which might change his preliminary voting decision

ii. To discover whether a given bit of information might change his mind, the voter compares it with his estimated party differential; if there is a chance, he acquires it.

1. The more a voter originally favors one party over another, the less likely he is to buy political information.
2. If he has a strong preference to start with, it takes a great deal of adverse information to change his mind.
3. On the other hand, a voter who is indifferent to begin with may also feel apathetic about becoming information. While his incentive to acquire information is larger than that of a highly partisan voter, it is irrational for him to acquire information unless he expects it to change his values.

iii. We can conclude that (1) information is relatively useless to those who citizens who care which party wins and (2) those citizens for whom information is most useful do not care who wins.

1. In short, nobody has a very high incentive to acquire political information.
2. Why the Party Differential Must be Discounted

i. The cost of a decision cannot truly be measured by a party differential since a man’s individual vote will not likely alter the outcome of an election.

ii. Instead, he must discount his party differential greatly before arriving at the value of voting correctly

1. Vote value is compounded from his estimates of his party differential and of the probability that his vote will be decisive, which is nearly infinitesimal under most circumstances.
2. The result is an enormously diminished incentive for voters to acquire political information before voting
   1. Then why should they buy political information?

iii. A rational man will buy political information because (1) he wishes to influence the government’s policies, (2) his prediction of how other voters will act indicates that the probability is relative high that his own vote will be decisive, or (3) he derives entertainment value or social prestige from such data.

1. The Impact of Indivisibility

i. Rational citizens want democracy to work well so as to gain its benefits and it worst best when the citizenry is informed; and it is individual irrational to be well-informed.

1. This paradox exists because the benefits men derive from efficient social organization are indivisible

ii. In a democracy, government cannot force people to become well-informed for the following reasons:

1. There is no reliable, objective, inexpensive way to measure how well-informed a man is
2. There is no agreed-upon rule for deciding how much information of what kinds each citizen should have
3. The loss of freedom involved in forcing people to acquire information would probably far outweigh the benefits to be gained from a better-informed electorate
4. Acquiring Information in Order to Influence Government Policy
   1. How Data Derive Value from Influence

i. A government formulates policy to please as many voters as it can, but no voter is pleased by a policy unless he prefers it to the alternative that could have been chosen.

1. A voter only knows what he prefers from information
2. The well-informed have a strong influence in determining what policy government will follow

ii. Government does not care whether the utility incomes of its citizens are affected by its behavior; it is interested only in their vote.

1. The government must know the citizen knows how policy will affect his income and vote to consider his preferences.
2. Thus, information derives value from the influence it enables its possessors to wield in the formation of government policy
3. The Cost of Communication

i. In spite of similarities, there are significant differences between acquiring information in order to vote and acquiring it in order to influence policy-making

1. Voters automatically communicate their decision to government in the act of voting
2. Policy influencing hopefuls however must transmit their opinions to government by specific acts in order to get results, for which there is costs
   1. Whatever the size of the cost, someone must pay it
   2. This cost factors in to deciding how much information to buy for purposes of influencing policy.
   3. Why Influencers are Better Informed than Voters

i. Relatively few consider exerting influence because of the lack of information

ii. Influencers must (1) produce arguments to counter any attacks upon him (2) assault the other’s contentions with data of his own and (3) be informed enough to know what compromises are satisfactory to him.

iii. Influencers must be specialists in whatever policy areas they wish to influence, whereas voters only compare proposed solutions.

1. This makes it irrational for non-specialist type to influence policy
2. Disparity of Influence and the Distribution of Power

i. Because division of labor and uncertainty cause different degrees of informed men, there is an equality of political power in democratic societies.

ii. Thus, the cost of information prevents our model government from ever functioning by consent of the governed in a pure sense.

iii. While our model against a communist government would probably show that democracy is relatively successful, political equality will never result in an uncertain world as long as men act rationally.

Chapter 14: The Causes and Effects of Rational Abstention

*The citizens who are eligible to vote in democratic elections often fail to do so.

1. Participation in Elections When Voting is Costless
   1. Why Only Those Citizens who are Indifferent Abstain

i. There is more of a risk to the man who votes incorrectly than to the man who votes.

ii. Voting makes democracy possible, and cannot operate rationally if everyone is indifferent about who wins each election, therefore we must assume throughout that:

1. At least one citizen is not indifferent
2. No tie votes occur
3. Indifference does not reflect equal disgust with the candidates but rather equal satisfaction with them

iii. Citizens who abstain know that the election will work and democracy will continue to function even if they abstain

1. Parties still cater to the majority of the electorate because (1) they don’t know who will be indifferent and (2) once elected, they know that the citizens who were indifferent may vote in the future
2. The Nature of Indifference

i. Indifferent voters are those who cannot see any net difference in the utility incomes they expect form each party if it is elected. Therefore it seems reasonable that they should have no influence on who wins.

1. This depends on whether indifferent voters are equally pleased or equally repelled

ii. When a large portion of the electorate is indifferent, it becomes an electoral issue

1. The cost of voting obstructs people from obtaining information that may influence their vote, therefore low-income citizens refrain from influencing election outcome disproportionately
2. The more information received, the less like a person is to be indifferent
3. Participation in Elections When Voting is Costly
   1. Voting Costs and their Behavioral Effects

i. Every vote has costs since it takes time, therefore there is the possibility cost will outweigh the returns of making a decision

1. Therefore even those with a preferred party may rationally abstain

ii. There are also initial transportation costs associated with registering to vote

iii. At first glace, these costs may appear trivial, however the returns from voting are usually so low that any tiny variations in its cost may have tremendous effects on the distribution of political power and affect election results.

1. The Nature, Size, and Impact of the Returns from Voting

i. The return of a citizen receives from voting is made up of several factors

1. The strength of his desire to see one party win instead of others
2. The degree to which he discounts his party differential to allow for the influence of other voters
3. The value of voting; positive voting costs cause some men who have definite preferences to abstain or not

ii. Because citizens expect so many others to vote, they may consider it outweighed by the cost of voting.

1. So many others will vote
2. If he believes everyone feels this way, he may be conversely motivated to vote by a return to his votes value
3. A Revised Summary of How Rational Citizens Decide How to Vote

i. (see previous chapters)

1. The Relation Between Voting Behavior and the Distribution of Power

i. There four different behaviors in an election

1. Voting for their party
2. Voting for some other party chosen for strategic reasons
3. Voting for a party chosen at random
4. Abstaining

ii. These different actions do not result in equal influence

Part IV: Derivative Implications and Hypotheses

Chapter 15: A Comment on Economic Theories of Government Behavior

*Few economists have tried to explain government behavior as a part of general equilibrium for several reasons

1. The Inconsistency of Traditional Economic Theories of Government
   1. The View Implicit in Traditional Theory

i. Government’s proper function is “to maximize the total satisfaction in a society”

ii. Government is that agency in the division of labor which has as its proper function the maximization of social welfare

1. The Weakness of This View

i. Every action is assumed to have a private motive as well as a social function, springing from the self-interest axiom

ii. The assignment of motives to men in government is crucial, and missing from many models of government behavior

1. Why Economists Have Ignored this Problem

i. Many theories assume that government will maximize welfare once it knows how to do so

ii. They assume government acts towards social welfare because they cannot concretely define social welfare as a concept

1. The Generality of Theories of Government Behavior
   1. Attempts to Apply One Theory to All Governments

i. By assuming government officials are all completely altruistic, they all seem to be the same

ii. Differing economic agents within society and private motives to influence officials vary

1. Why Many Theories are Necessary

i. Since political structures of societies differ, several theories are necessary to explain government’s economic acts in various systems.

ii. Thus in both normative and positive economics, theorizing about government action requires the use of political axioms.

1. Economists must develop models that unify politics and economics

Chapter 16: Testable Propositions Derived from the Theory

* There are now certain propositions we can make which are derived from our basic hypothesis

1. The Basic Hypotheses and Their Interrelationship
   1. Our main thesis is that parties in democratic politics seek to formulate policies they believe will gain the most votes.
   2. Specific Testable Propositions
      1. Deductions From the Party-Motivation Hypothesis

i. Party members are motivated to obtain the intrinsic rewards of holding office, therefore formulate policies as means to holding office

ii. Both parties in a two-party system agree on any issues a majority of citizens strongly favor

iii. In a two-party system, party policies are (a) more vague (b) more similar to those of other parties and (c) less directly linked to an ideology than in a multi-party system

iv. In a multiparty system, government takes less effective action to solve basic social problems, policies are less integrated and consistent

v. New parties arise when either (a) a change in suffrage laws sharply alter the distribution of citizens, (b) there is a sudden change in social outlook or (c) a party takes a moderate stand and party members splinter off.

vi. Democratic governments tend to redistribute income from the rich to the poor

vii. Democratic governments tend to favor producers more than consumers in their actions

1. Deductions From the Citizen-Rationality Hypothesis

i. Among citizens who decide how to vote on the basis of issues, past issues are more important than future promises

ii. Under certain conditions, a rational man votes for a party other than the one he would most prefer to see in office

iii. Rational men may vote for a hopeless party if (a) they are future oriented, or (b) they hope to influence another party’s platform

iv. Many citizens who vote and consider voting important are not well-informed on the issues involved

v. Because nearly every citizen realizes his vote is not decisive, the incentive of most citizens to acquire information before voting is small

vi. A large percentage of citizens do not become informed on issues even if they believe the outcomes to be important

vii. The citizens who are best informed on any issue are those whose income is directly affected by it

viii. Citizens who are well-informed on issues that affect them are probably not equally well-informed on other issues

ix. Citizens who have definite party preferences are more likely to vote than those who cannot se much net difference

x. Many citizens delegate even the evaluative steps in voting to others and follow advice in casting their vote

xi. Citizens of a democracy obtain a return from voting even if they do no care who wins the particular election

xii. The percentage of low income citizens who abstain is higher than high-income who abstain

xiii. The reason from higher abstention in lower-income classes are (a) greater uncertainty and (b) more difficulty bearing voting and information costs

xiv. When voting costs are reduced substantially, participation in elections greatly increases

xv. Citizens whoa re exposes to information chosen without selection principles tend to abstain more than those who information has homogenous principles

1. Deductions From Both Hypotheses

i. Political parties tend to carry out as many of their promises as they can when elected

ii. Political parties tend to maintain ideological positions that are consistent over time unless they suffer drastic defeats

iii. In systems usually governed by coalitions, most citizens do not vote as though elections were government-selection mechanisms.

1. Summary
   1. Parties act to maximize votes
   2. Citizen behave rationally in politics