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Inefficient Voting

By Jacob K. Goeree and Nixon Li

Abstract

We employ theoretical and experimental techniques to compare alternative mechanisms designed to implement a simple binary choice, e.g. a referendum to accept or reject a new law or proposal. The outcome selected by the mechanism applies to all individuals but the value of this outcome differs across the population: some benefit from the outcome while others may lose. We assume that neither outcome is ex ante preferred, i.e. the two alternatives have the same expected value. We compare a simple voting mechanism to two types of bidding mechanisms and show that, theoretically, voting always results in inefficiencies. This prediction is corroborated by results from laboratory experiments, which reveal that the ability to express the intensity of one’s preference via a monetary bid facilitates the discovery of the socially optimal outcome. Furthermore, because of the redistribution that occurs under the bidding mechanisms, the benefits of a more efficient outcome do not simply accrue to “extremists ” who have a lot at stake. Indeed, in the experiment, it is only the common “moderate ” voter whose payoffs increase significantly and substantially

Year: 2008
OAI identifier: oai:CiteSeerX.psu:10.1.1.192.4763
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