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Book: Storable Votes: Protecting the Minority Voice
"Storable Votes and Agenda Order Control. Theory and Experiments"
The paper studies a voting scheme where members of a committee voting sequentially on a known series of binary proposals are each granted a single extra bonus vote to cast as desired - a streamlined version of Storable Votes. When the order of the agenda is exogenous, a simple sufficient condition guarantees the existence of welfare gains, relative to simple majority voting. But if one of the voters controls the order of the agenda, does the scheme become less efficient? The endogeneity of the agenda gives rise to a cheap talk game, where the chair can use the order of proposals to transmit information about his priorities. The game has multiple equilibria, differing systematically in the precision of the information transmitted. The chair can indeed benefit, but the aggregate welfare effects are of ambiguous sign and very small in all parameterizations studied. The theoretical conclusions are tested through laboratory experiments. Subjects have difficulty identifying the informative strategies, and tend to cast the bonus vote on their highest intensity proposal. As a result, realized payoffs are effectively identical to what they would be if the agenda were exogenous. The bonus vote matters; the chair's control of the agenda does not.
"Protecting Minorities in Binary Elections. A Test of Storable Votes Using Field Data"
with Shuky Ehrenberg, Andrew Gelman and Jie Shen
Democratic systems are built, with good reason, on majoritarian principles, but their legitimacy requires the protection of strongly held minority preferences. The challenge is to do so while treating every voter equally and preserving aggregate welfare. One possible solution is storable votes: granting each voter a budget of votes to cast as desired over multiple decisions. During the 2006 student elections at Columbia University, we tested a simple version of this idea: voters were asked to rank the importance of the different contests and to choose where to cast a single extra "bonus vote," had one been available. We used these responses to construct distributions of intensities and electoral outcomes, both without and with the bonus vote. Bootstrapping techniques provided estimates of the probable impact of the bonus vote. The bonus vote performs well: when minority preferences are particularly intense, the minority wins at least one of the contests with 15--30 percent probability; and, when the minority wins, aggregate welfare increases with 85--95 percent probability. When majority and minority preferences are equally intense, the effect of the bonus vote is smaller and more variable but on balance still positive.
"Storable Votes: Giving Voice to Minorities without Sacrificing Efficiency "
with Thomas Palfrey and Raymond Riezman
CESIfo DICE Report 2007, 3.
"Minorities and Storable Votes"
with Thomas Palfrey and Raymond Riezman
The paper studies a simple voting system that has the potential to increase the power of minorities in committees without sacrificing aggregate efficiency. Storable votes grant each voter a stock of votes to spend as desired over a series of sequential binary decisions. By accumulating votes on issues that it deems most important, the minority can win occasionally. But because the majority typically can outvote it, the minority wins only if its strength of preference is high and the majority's strength of preference is low. The result is that aggregate efficiency either falls little or in fact rises. The theoretical predictions of our model are confirmed by a series of experiments: the frequency of minority victories, the relative payoff of the minority versus the majority, and the aggregate payoffs all match the theory.
"A Simple Scheme to Improve the Efficiency of Referenda "
with Andrew Gelman
This paper proposes a simple scheme designed to elicit and reward intensity of preferences in referenda: voters faced with a number of contemporaneous binary proposals are given one regular vote for each proposal plus an additional number of bonus votes to cast as desired. Decisions are taken according to the majority of votes cast. In our base case, where there is no systematic difference between proposals' supporters and opponents, there is always a positive number of bonus votes such that ex ante utility is increased by the scheme, relative to simple majority voting. When the distributions of valuations of supporters and opponents differ, the improvement in efficiency is guaranteed if the distributions can be ranked according to first order stochastic dominance. If they are, however, the existence of welfare gains is independent of the exact number of bonus votes.
"Information Channels in Labor Markets. On the Resilience of Referral Hiring "
with Nobuyuki Hanaki
Economists and sociologists disagree over markets' potential to assume functions typically performed by networks of personal connections, first among them the transmission of information. This paper begins from a model of labor markets where social ties are stronger between similar individuals and firms employing productive workers prefer to rely on personal referrals than to hire on the anonymous market (Montgomery (1991)). However, we allow workers in the market to engage in a costly action that can signal their high productivity, and ask whether the possibility of signaling reduces the reliance on the network. We find that the network is remarkably resilient. To be effective, signaling must fulfill two contradictory requirements: unless the signal is extremely precise, it must be expensive or it is not informative; but it must be cheap, or the network can undercut it.
"An Experimental Study of Storable Votes"
with Andrew Gelman and Thomas Palfrey
The storable votes mechanism is a method of voting for committees that meet periodically to consider a series of binary decisions. Each member is allocated a fixed budget of votes to be cast as desired over the multiple decisions. Voters are induced to spend more votes on those decisions that matter to them most, shifting the ex ante probability of winning away from decisions they value less and towards decisions they value more, typically generating welfare gains over standard majority voting with non-storable votes. The equilibrium strategies have a very intuitive feature–the number of votes cast must be monotonic in the voter’s intensity of preferences–but are otherwise diffcult to calculate, raising questions of practical implementation. In our experiments, realized effciency levels were remarkably close to theoretical equilibrium predictions, while subjects adopted monotonic but off-equilibrium strategies. We are lead to conclude that concerns about the complexity of the game may have limited practical relevance.
Motivated by the need for more flexible decision-making mechanisms in
the European Union, the paper proposes a simple but novel voting scheme
for binary decisions taken by committees that meet regularly over time.
At each meeting, committee members are allowed to store their vote for
future use; the decision is then taken according to the majority of votes
cast. The possibility of shifting votes intertemporally allows agents to
concentrate their votes when preferences are more intense, and although
the scheme will not in general achieve full efficiency, making votes storable
typically leads to ex ante welfare gains. The result appears clearly and
can be proven rigorously in the case of 2 voters. With more voters, the
analysis suggests that the welfare improvement should continue to hold
if one of the following conditions is satisfied: (i) the number of voters
is above a minimum threshold; (ii) preferences are not too polarized; (iii)
the horizon is long enough.
A European Model."
Following the rationale for regional redistribution programs described
in the offcial documents of the European Union, this paper studies a very
simple multi-country model built around two regions: a core and a periphery.
Technological spill-overs link firms’ productivity in each of the two regions,
and each country’s territory falls partly in the core and partly in the
periphery, but the exact shares vary across countries. We find that, in
line with the EU view, the effcient regional allocation requires both national
and international transfers. If migration is fully free across all borders,
then optimal redistribution policy results from countries’ uncoordinated
policies, obviating the need for a central agency. But if countries have
the option of setting even imperfect border barriers, then effciency is
likely to require coordination on both barriers and international transfers
(both of which will be set optimally at positive levels). The need for
coordination increases as the Union increases in size.
Mechanisms for Policy Decisions:"
the European Union."
The success of an enlarged European Union will require transparent
and subtle mechanisms for policy coordination. A common policy is a public
good, and economists have developed many schemes for the efficient provision
of public goods. The European Union offers a promising soil for such schemes,
but they must be simple and tailored to its specific needs. The paper discusses
two possible examples: a system of tradable deficit permits implementing
the fiscal constraints of the Maastricht treaty; and a rule allowing country
representatives to shift their own votes intertemporally when deliberations
are taken in periodic committee meetings.
for Central Bankers: Markets v/s
politics in public policy decisions."
This paper questions the link between the establishment of
a common currency among several countries and the necessity of political
coordination. It begins by discussing why conducting a single monetary
policy is thought to be easier within a single political unit. It then
proceeds to enquire whether market mechanisms could be used to choose optimally
the common policy of heterogenous actors, and thus provide an alternative
to political decision-making. The advantage of market mechanisms is that
they are transparent, predictable, and usually more efficient. In particular,
the paper studies a simple game through which national representatives
could choose the monetary policy of a single, multinational central bank.
There are no fundamental logical objections or impossible practical obstacles
to such market games, and even if they are rejected on principle they are
useful in suggesting desirable amendments to traditional voting schemes.
of Market Size in the Formation of Jurisdictions."
Administrative and political reorganization is being actively
debated even in the mature, stable economies of Western Europe. This paper
investigates the possibility that such a reorganization is tied to the
integration of economic markets. The paper describes a model where heterogeneous
individuals form coalitions for the provision of a public good and shows
that the number and composition of these jurisdictions depend on the overall
size of the market. The range of economic activities engaged in by jurisdiction
members increases when the size of the market increases, and so does the
range of their preferences over the public good. The result is a change
in the endogenous borders of the jurisdictions, and a reorganization of
all coalitions. The optimal number of jurisdictions is unique and increases
with market size. In the absence of compensating transfers, however, the
decentralized equilibrium need not be optimal and is not unique, although
there is no restriction on individuals’ ability to coordinate the formation
of coalitions. It remains true that a large enough increase in market size
will trigger an increase in the number of jurisdictions.
of the Stability Pact in the European Monetary Union."
Borrowing from the experience of environmental markets, this paper proposes
a system of tradable deficit permits as an efficient mechanism for implementing
fiscal constraints in the European Monetary Union: having chosen an aggregate
target for the Union and an initial distribution of permits, EMU countries
could be allowed to trade rights to deficit creation. The scheme exploits
countries’ incentives to minimize their costs, is transparent, flexible
in accommodating idiosyncratic shocks and allows for adjustments in case
of Europe-wide recessions. In addition, it need not treat all countries
identically and can be designed to penalize countries with higher debt
to GDP ratios. Finally, the scheme rewards countries for reducing their
deficit below the initial allowance, lending credibility to the Stability
Pact’s goal of a balanced budget in the medium run.
Market and Group Ties in International Trade."
with James E. Rauch
When trade involves differentiated products, preferential
ties to a group settled abroad facilitate an exporter's entry into the
foreign market by providing information and access to distribution channels.
This contrasts with the difficulties experienced by an unattached producer
unfamiliar with the foreign environment. We build a simple general equilibrium
model of trade that formalizes this observation. Output is generated through
bilateral matching of agents spanning a spectrum of types. In the domestic
market every trader knows the type of all others and can approach whomever
he chooses; when matching abroad, instead, traders lack the information
necessary to choose their partner's type. A minority of individuals has
access to group ties that extend complete information to international
matches. The existence of informational barriers reduces the volume of
trade, and thus by increasing total trade group ties are beneficial to
the economy as a whole. However, the ties have significant distributional
effects because they modify the composition of the market. Only the more
desirable types choose to match through the group, worsening the prospects
of successful international partnerships for everybody else. The volume
of trade and expected per capita income rise for group members, but fall
for non-members. Whether or not they have access to the ties, individuals
with the weakest domestic alternatives are always hurt.
Goods in Trade on the Formation of Markets and Jurisdictions."
with Jonathan S. Feinstein
Must the integration of markets be accompanied by the harmonization
of societies' institutions? To address this question we construct a model
of heterogenous traders where the return from private exchange is directly
affected by the public good individuals have access to. Trade takes place
in the market, whereas the public good is chosen and financed by the jurisdiction,
and each individual chooses which market and which jurisdiction to join
among the many that form in equilibrium. Although trade between members
of different jurisdictions entails transaction costs, we find that market
integration is neither necessary nor sufficient for the integration of
jurisdictions: only at intermediate market sizes must trading partners
belong to a single jurisdiction. When markets are small multiple jurisdictions
can exist, although a single one would be preferable; when markets are
large multiple jurisdictions are both possible and desirable.
Informational Barriers to International Resource Allocation:"
"Price and Group
with James E. Rauch
Incomplete information in the international market creates
difficulty in matching agents with productive opportunities and interferes
with the ability of prices to allocate scarce resources across countries.
Resource-price differentials may not be eliminated and domestic resource
supplies may have excessive influence on domestic resource prices. Information-sharing
networks among internationally dispersed ethnic minorities or business
groups can improve the allocation of resources, though at the same time
they may hurt those excluded from the preferential information channels.
However, when ties are denser between countries with small resource price
differences than between countries with large resource price differences,
such networks can worsen the allocation of resources and reduce the value
of world output.