T C A Srinivasa-Raghavan: Voting rules and voting patterns

OKONOMOS

The interplay of incentives to vote in a particular way and the majority rules adopted by the voting group govern the eventual outcomes 

In the last 18 months, the UPA government has pushed through a whole series of laws and constitutional amendments. These have created some winners (though because government is corrupt to its very marrow, not as many as the government would like us to think) and somewhat fewer losers.

Neither group is happy. The putative winners are waiting and watching because they don't trust the government. The losers are screaming blue murder.

Two questions arise. First, will those politicians who voted for these laws and amendments benefit as a result; second, if they are not sure that they will, why did they vote in favour?

In a recent paper* in the Quarterly Journal of Economics, Bard Harstad of the Northwestern University, US (and formerly of the Kellog Business School) discusses the interplay of incentives to vote in a particular way and the majority rules adopted by the voting group that govern the outcomes.

Although his paper is about the EU, it holds some important lessons for us. The Lok Sabha Speaker, Somnath Chatterjee would do well to have it read out to him. Imagine that Parliament is a club (it certainly qualifies on the quality of food at its canteen) that adopts a particular majority rule. This is "the number of members that must approve a policy proposed to replace the status quo," is, say, half for an ordinary Bill and two-thirds for a constitutional amendment.

Implicit in this rule, at least in other countries, is the understanding that winners must compensate losers in some manner. Indeed, when we look at it in that way, it becomes clear that this is exactly what the UPA government is doing, but with a difference "" it is compensating certain groups for historical wrongs and others for government corruption in the past.

There is, of course, always the hold-up problem, in that some groups who think they are not getting enough out of the proposed change can hold things up.

The authors say that the majority rule adopted by the club "determines the incentives to invest (vote in a particular way) in order to become a winner... If the required majority is large, members invest too little because of a holdup problem; if it is small, members invest too much in order to become a member of the majority coalition."

Therefore, they say, the trick is to make sure that two things happen. One is to ensure that the gains from the change are very high and the second is that the club should be able to enforce. High gains reduce the heterogeneity of preferences.

In India we have the former but not the latter. The key insight in this paper is that the majority rule in place makes a huge difference to the way members vote. "When side payments are available, the majority rule should be set such that these incentives are optimal." That means you either reduce the side-payments or you compensate for them.

It is not easy, of course, to arrive at the optimal majority rule because that would necessarily involve assigning weights to votes and perhaps even second round voting. But that said, it would be an improvement on the set of current rules that we have.

"The winners can compensate the losers if and only if it is socially efficient ex post "" whatever is the majority rule." What this means is the majority rules should not bother about selecting the "right" issues but only about minimising the amount of compensation to losers. This is crucial if the members have to stop looking at change as a way of increasing their vote share.

Another aspect is that "winners" can also become expropriated in equilibrium or may have to compensate those benefiting less. This is the creamy layer problem in India.

But equally, voting for change can "increase a member's probability of becoming a member of the majority coalition of winners", which is vital because it is the winners who "determine the distribution of surplus, while the minority is neglected and expropriated."

In the final analysis, the problem is of devising a majority rule that requires only a few to be compensated even while a large minority is expropriated.

Otherwise, you may get a bias towards the status-quo because the proposed change is not worth anyone's while "" for instance, the Womens' Reservation Bill.

*Majority Rules and Incentives, Quarterly Journal of Economics, Vol. 120, Issue 4, November 2005