Abstract
A classic argument in economic theory is that in a world of zero transaction costs the free bargaining among parties spontaneously leads to an efficient allocation of resources. Attempts have been made by many economists to apply such an argument to the field of politics. In contrast to market exchanges, political exchanges have been widely criticized on ethical grounds. Going beyond the well-known moral criticism regarding the exchange of votes, the paper attempts to demonstrate how in politics, ethics and economics can go hand in hand. Specifically, it proposes an unusual perspective on transaction costs, by arguing that the enhancement of such costs can be required to achieve efficient results in specific circumstances, where the free bargaining among parties conflicts with the public issue to be addressed. This suggests the basic idea that, while in markets transaction costs should be reduced, in politics, they may require to be enhanced.
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Notes
The principal characteristic of the “public choice theory” is to apply economic tools to deal with traditional problems in political science (Tullock 2008). Its basic assumption is that political agents, including voters and elected officials, are mainly self-interested. For a complete overview of this strand of literature see, among others, Mueller (2003).
Buchanan and Tullock introduce logrolling in a simple model of direct democracy. Hence, in this case, the pareto-efficient results refer to the direct participants in the collective choices. However, as the authors specify, the results of the model remain valid in large part, even in the case of representative democracy, where interests representative of different groups are exchanged.
The cases proposed by Sandel are of particular interest, for example, in relation to the market to attend the meetings of congressional committees.
Bowles’ translation of “…è necessaria a chi dispone una repubblica e ordina le leggi in quella, presupporre tutti gli uomini rei” (Machiavelli 1513–1517).
He specifically refers to Adam Smith’s Theory of Moral Sentiments.
Obviously, Rawls’ arguments are used here in a very simplified way, despite their relevance and complexity on philosophical grounds.
“a” represents the individual payoff when belonging to a special interest group or, also, the personal gains originating from a “corruptive” price paid by such a group.
During the legislative process cases occur in which logrolling activities are easier because transaction costs are lower. This is just the case, for instance, in the approval of the “financial stability law” in Italy, by which thousands of amendments of very limited interest are approved every year. In this case, the enforcement of reciprocal agreements is easier because all the proposals are approved in the same bill. It is difficult to assert that many of them have efficiency enhancing effects.
The efficiency property of such results is justified by the fact that the institutional aim of State intervention is exactly to correct the under-provision of public goods achieved by market bargaining.
In particular, see the section entitled “Che li signori Nove stieno in luogo publico et aperto ogne giovedì” (That the Nine lords be in a public and open place every Thursday) in the “Sesta Distintione” of the “Costituto” (1309–1310).
See also the condition of “publicity” in Rawls (1971) as a formal constraint of the concept of right.
Moving from examples from the past to the contemporary, even new technologies offer efficient instruments for monitoring private agreements and the public integrity of elected officials. See, for instance, the valuable activities of many civil society organizations engaged in tracing the influence of money (especially so-called “dark money”) over public policies, by financing the electoral campaigns of parties or single candidates.
Nowadays the value of privacy tends to be highly overestimated in respect of other much more important issues for citizens. In this sense it is necessary to take into account the existing trade off between the protection of privacy and the prevention of corruption, which would often require to be rebalanced in favor of the latter for the sake of efficiency. This is just the case of the huge amount of anonymous money deposited in the so called “tax havens”, which are often used to feed corruptive activities in other countries.
Since electoral campaigns are very expensive, candidates need to compete with each other in the market for financial support. For this reason, an increasing concentration of wealth, among and within countries, can strongly influence public policies towards private interests, which conflict with more general ones. Also, the growing influence of global corporations represents an effective threat to the correct functioning of democracies worldwide. In this field, an effective antitrust regulation can be an institutional device to protect the efficient functioning, not only of the market, but also of democracy itself.
Balestri (2014) develops a model of representative democracy where political organizations are intended to maximize a residual quantum consisting in the public authority that can actually be exercised after all the electoral commitments with voters and interests groups have been fulfilled. This residual right—which can be seen also as the degree of discretion necessary for ruling parties to deal with unforeseen contingencies—is based on the “reputational” capital (goodwill) accumulated over time by political organizations and represents the intangible asset that secures voter loyalty and, consequently, the legitimacy to exercise public authority in the long run.
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Balestri, C. On the Inefficiency of Political Exchange. Public Organiz Rev 16, 167–178 (2016). https://doi.org/10.1007/s11115-014-0301-z
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DOI: https://doi.org/10.1007/s11115-014-0301-z