Collective decision making and the limits on the organization's size

This essay clarifies the relationship between the technology of organizational decision making and the limits on the size of the group of decision makers within the organization. Viewing the number and quality of decision makers, and the time required for decision making as inputs in the production of collective decisions, we show that there exist generic organizational forces that offset the incentive to unlimited expansion of the organization. Even in a long run competitive environment with perfect markets for managers, unlimited duplication of the firm may not be economically feasible. We first analyze in a general setting and then illustrate in two stylized examples, the interplay between individual decisional quality, time required for an individual decision, direct and indirect costs of decision making, and the optimal number of decision makers (for example, management size).We are indebted to an anonymous referee of this journal and to P. Aranson for their very helpful comments and suggestions.     

Explaining collective action with rational models

We note the failure of a rational egoist model of human behavior to generate successful predictions of important economic and political behaviors including collective action. Alternative models are presented that combine rational, utility-maximizing features with concerns about collective welfare. The performance of these models in explaining contributing behavior in an experimentally-induced public goods game is compared to the performance of a rational egoist and collective welfare model. The results indicate that a model in which subjects are presumed to trade off benefits to self with benefits to others provides a better explanation of actual contributing behavior than either the rational egoist or collective welfare models, but still explains only a small amount of the individual variance in contributing behavior.The Institute for Political Economy, Utah State University provided important financial support for this study. Donald Cundy, Alan Huston, Joe Oppenheimer, John Orbell, and Randy Simmons provided valuable comments on earlier drafts.     

The median and the competitive equilibrium in one dimension

Two alternative models of legislative outcomes are the minimum winning coalition and the competitive equilibrium (Koford, 1982). In a unidimensional setting, the outcome under the former is the median, while the outcome under the latter is the highest net demand location.This paper describes the competitive equilibrium in a unidimensional model, and shows that under some common conditions it coincides with the median, in particular for pure redistributive issues. However, for distributive issues, the two equilibria will differ. Finally, the comparative statics of the two models are examined; while the winning coalition is sensitive only to changes in the location of the median, for distributive issues the competitive equilibrium has the standard economic comparative statics that the outcome adjusts in the direction of the change in preferences.     

Competition in political and economic markets

Prepared as a response to Frey and Eichenberger's Anomalies in Political Economy. We thank Gordon Tullock for helpful discussions. This work was partially supported by the Taylor Experimental Laboratory at Washington University.     

Admissible and sincere strategies under approval voting

This essay reasses the assumptions of the Brams-Fishburn theory of approval voting, and proposes modifications to make the theory correspond better with likely voting choices. With a small number of candidates, voters who use the inadmissible strategy of voting for all candidates can help to produce a result that better reflects the voters' wishes than is possible with admissible strategies, so we propose a widening of the definition of admissibility to encompass this case. With more than three candidates, we define first-order admissible strategies, which are the most likely strategies to be used in practice, and are also strongly sincere, in that a vote for any candidate is always accompanied by votes for all more or equally-preferred candidates. Their number is less under approval voting than under plurality voting. Both proposed modifications strengthen the technical arguments favoring approval voting over plurality voting.     

The stability of stated preferences for public goods: Evidence from recent budget games

We have investigated the stability of the individual response in recent budget games based on survey data, which is an important requirement for the reliability of this instrument. Budget games have gained popularity due to the problems encountered with alternative methods to determine preferences for public goods, such as the analysis of actual public expenditure date using median-voter theory or similar approaches. The short-term test-retest correlations (within an interval of one month) turn out to be rather low, typical around 0.3. No explanation of the test-retest differences could be found from the usual socio-economic and political characteristics of the respondents or from information characteristics of the survey design. Also, the pattern of budget-game outcomes for different countries and different periods is rather similar. The cumulative evidence suggests that the survey response to budget games is generated to a large extent by very general notions on the (un)desirability of public goods: defence is bad, education and health care are good. This implies that outcomes are often not related to the actual level and structure of public expenditure or revenues. As a result, the individual responses, even to the more sophisticated budget games, are subject to large uncertainty margins. Our results should warn researchers and, even more important, policy makers against giving too much weight to stated preferences for public expenditure or taxation levels obtained from budget games. Of course, further research is needed to obtain the precise limits of the instrument, including laboratory experimental economics.     

Do legislators' votes reflect constituency preference? A simple way to evaluate the Senate

U.S. senators frequently vote against the preference of their constituency, assuming that such a preference exists. Both of a state's senators represent the same constituency. Whenever they split their votes, one or the other is necessarily going against the constituency preference. For the sample of defense-related votes analyzed above, misrepresentation — either observable vote splitting or unobservable vote matches that go against the constituency preference — occurred at least 37 percent of the time, at least 46 percent on one vote. Although party differences accounted for more than two-thirds of the vote splitting, a substantial number of splits remained. Besides, a party difference for a state's senatorial pair is itself problematical.The method employed here can be applied easily to any data whatever on senatorial voting. Its application will show that, quite often, many senators depart from constituency preference. This finding refutes the hypothesis, popular in certain circles, that ours is a more or less perfect political market with little or no scope for ideologically driven voting by legislators.     

The possibility of a desirable minimal state

There is a near consensus that organized special interests use influence to expand government into activities that are detrimental to the public at large. Consequently, as Lee (1989) suggests, it would be desirable if the general public had more control over political decisions — if government were more responsive to the public interest. However, the public interest like rent-seeking, is a subjective concept (Pasour, 1987).The possible existence of a desirable minimal state is not disproved by an approach that assumes utilities are interpersonally comparable. Individual utilities are subjective and ordinal and hence, cannot be added or weighted to determine the level of government that is socially optimal. If one accepts the subjectivist approach, it follows that no one can decide upon any policy whatever in the absence of an ultimate ethical or value judgment (Rothbard, 1982: 212). In this respect, determining the desirable minimal state is no different from determining whether an individual government program is desirable (or whether it represents rent-seeking waste).     

Optimal team and individual decision rules in uncertain dichotomous situations

In this paper, we consider the problem of determining the optimalteam decision rules in uncertain, binary (dichotomous) choice situations. We show that the Relative (Receiver) Operating Characteristic (ROC) curve plays a pivotal role in characterizing these rules. Specifically, the problem of finding the optimal aggregation rule involves finding a set ofcoupled operating points on the individual ROCs. Introducing the concept of a team ROC curve, we extend the method of characterizing decision capabilities of an individual decisionmaker (DM) to a team of DMs. Given the operating points of the individual DMs on their ROC curves, we show that the best aggregation rule is a likelihood ratio test. When the individual opinions are conditionally independent, the aggregation rule is a weighted majority rule, but with different asymmetric weights for the yes and no decisions. We show that the widely studied weighted majority rule with symmetric weights is a special case of the asymmetric weighted majority rule, wherein the competence level of each DM corresponds to the intersection of the main diagonal and the DM's ROC curve. Finally, we demonstrate that the performance of the team can be improved by jointly optimizing the aggregation rule and the individual decision rules, the latter possibly requiring a shift from the isolated (non-team) optimal operating point of each DM.Research supported by NSF grant #IRI-8902755 and ONR contract #N0014-90-J-1753.     

University admission requirements as rent-seeking

The paper argues that admission requirements into public universities are best viewed as rent-seeking by several groups, in contrast to the conventional rationing rationale. The rents are principally nonfinancial for some of the groups. The paper concludes by showing why admission requirements are not set too high.Discussions with Joe Jadlow, Scott Turner and Larkin Warner, and comments by colleagues on an earlier version in our departmental Workshop helped clarify the issues. I thank them, emphasizing that the normal caveat is not pro forma.     

Elections and government spending

It is widely believed that electoral pressures cause legislators to favor government spending programs. This electoral theory of spending is shown to encompass two core hypotheses: (1) the electoral consequences hypothesis, which states that support for spending programs improves the representative's electoral showing; and (2) the legislator insecurity hypothesis, which states that greater electoral insecurity leads representatives to be more in favor of spending programs. A test of these ideas using spending scores for U.S. representatives in 1986 finds that neither hypothesis is supported by the data.     

The courts,interest groups,and public opinion about abortion

Public preferences about the availability of abortion under various circumstances have remained fairly stable over time. Yet a standard CBS/New York Times abortion question indicates that a significant shift in opinion occurred during the 1980s, whereby the public became increasingly supportive of legalized abortion as it is now. These very different patterns of public opinion about abortion suggest that the public perceived a shift in the abortion status quo, toward more restricted access, over time, and became more supportive of current abortion policy.A model of support for legalized abortion as it is now is developed that incorporates the influences of court activities and interest-group behavior. The analysis indicates that the public reacted directly to the activities of the courts, becoming more supportive of current abortion policy in response to media coverage of court cases that challenged the abortion status quo and Supreme Court nominations and confirmations. Although absolute preferences remained largely unchanged, it appears the public perceived an increasing threat to the status quo and became correspondingly less enamored with further restrictions on the availability of abortion.     

Reviews

Recently, various authors have examined the relationship between growth in government size and total economic growth. In each case, the authors permitted only a monotonic relationship. This paper examines the issue of a non-linear relationship between growth in government and overall growth in the economy.Government contributes to total economic output in various ways. The provision of Pigovian public goods enhances the productivity of the private sector inputs increasing total output. However, the public decision-making process can result in an inefficient quantity of public goods. The likelihood of this outcome increases with the size of government. Further negative effects are created by the revenue raising and spending mechanisms of government, and the increasing diversion of resources into unproductive rent-seeking activities. The magnitude of these effects is likely to increase with the relative size of government.     

A constitutional view of legislative pay

The distinction between constitutional rules and post-constitutional laws is often a fine line. However, this analysis suggests that, in the case of state legislative pay, constitutional rules are much more binding than post-constitutional restrictions. Further research in the area of constitutions from an economic point of view may yield fruitful results. As Tullock (1988: 140) has stated, The real importance of such an evaluation could be as a first step toward developing improved constitutional rules. Evaluating other areas of policy from a constitutional point of view might shed light on the path towards the development of optimal rules in a democratic process.Thanks go to Randy Holcombe for helpful comments and suggestions.     

International trade policy in Israel: Another model — Reply

The aim of this study was to examine the tariff structure in Israel in terms of the four main theoretical models of endogenous commercial policy. The empirical results for levels of protection in Israel support several of the models. In particular the pressure group model performs well and especially the variable that represents the lobbying power of the Histadrut/public sector in Israel. This is consistent with the longstanding political power of the Histadrut in Israel. The Histadrut's role in the Israeli economy rises above the western concept of a labor union and takes on a quasi-governmental function. The clearest example of this elevated status is seen when the government included the Histadrut as part of the commission charged with the responsibility of carrying out the nominal liberalization process of the 1960s. Evidently it is this kind of political-economic power that allowed the Histadrut to affect the level of protection Histadrut-dominated industries received.The displacement costs model is also supported suggesting that officials, when deciding on tariff rates, are sensitive to the displacement costs (e.g., amount and average duration of unemployment), associated with different levels of protection for various industries. This result stands in contrast to the goals set out in the New Economics Policy of 1962 discussed earlier. Apparently tariff setting authorities desired to increase efficiency by reducing protection but were also willing, perhaps for political reasons, to trade off lower displacement costs with higher tariff rates.     

Circumventing formal structure through commitment: Presidential influence and agenda control

Although the formal institutional structure that defines the temporal order of play in a policy game between the Congress and President ought to provide Congress with agenda power, the President is traditionally treated as the dominant player in this relationship. We show that if the President can make clear-cut commitments, presidential commitment can counter the dominance hierarchy and the complexion of equilibrium outcomes. Thus, the details of political interactions (in particular, the possibilities for commitment) may be as important as the formal specification of institutional structure.We thank Peter Aranson, David Austen-Smith, Ed Campos, Gerry Faulhaber, Art Frank, Ken Koford, William Riker, Janet Pack, the anonymous referees, and seminar participants at the University of Delaware, the University of Pennsylvania, and the University of Rochester for helpful comments, subject to the usual caveat. We also thank Joel Friedlander and Harold Dichter for research assistance.     

The social policy of the firm

The welfare state concept hides an important aspect of modern industrial societies. In capitalist countries welfare is provided through a mixture of public and private initiatives. The author suggests that the concept welfare economy more fully captures the economic interpenetration of public and private sectors. The growth of fringe benefits illustrates the extent to which private enterprise performs the welfare function.Government increasingly intervenes through processes of mandating, stimulating, regulating, and supporting, using private enterprise as the vehicle for delivery of welfare services. Government's traditionally conceived role as welfare service provider is also changed through recognition that it is both an employer and purchaser, significantly impacting society's original income distribution.An earlier version of this essay was presented as a lecture at the University of Melbourne and published in Ronald F. Henderson, The Welfare Stakes: Strategies for Australian Social Policy, Melbourne: Institute of Applied Economics and Social Research, 1981.     

Tollison costs and technological innovation: The case of environmental regulation

This paper departs from the Tullock cost paradigm that views competition for monopoly privilege as a welfare-inimical process that wastefully dissipates preexisting producers' surplus and, occasionally, leads to inefficient increases in costs and counterproductive uses of scarce resources. The potential availability of rent-seeking may bring about the elimination of inefficient regulatory regimes that retard or prevent the introduction of cost-reducing innovations. Air quality management is but one area in which innovation rent-seeking holds promise for concrete welfare gains. Researchers may wish to focus on institutional mechanisms designed to overcome the transactions costs and free rider disincentives to the formation of a coalition to seek innovation rents. An example of such a mechanism might be a joint venture that requires all venture members to engage in lobbying and to contribute to collective research efforts. These unaddressed questions await future research.The authors are grateful for the insightful comments of Gordon Tullock, Robert D. Tollison, Michael T. Marlow and J.R. Clark. The usual caveats apply. The views expressed herein are solely those of the authors and should not be taken to represent the views of their employers.     

Measuring the ideological preferences of U.S. presidents: A proposed (extremely simple) method

Several observations can be made concerning the data presented in the preceding tables. First, as one might expect, not all Democratic or Republican presidents are alike. As shown in Table 3, John Kennedy has a higher cumulative pro-ADA rating than does Lyndon Johnson than does Jimmy Carter. On the Republican side, Dwight Eisenhower comes in at roughly the middle of the ADA liberal/conservative ideological spectrum and considerably to the left of both Ronald Reagan and George Bush.Second, while there appear to be significant differences between the ideological preferences of presidents from the same party, the correlation between a president's annual or cumulative pro-ADA percentage and a dummy variable reflecting the party of the president (Democrats equal unity, Republicans equal zero) is still fairly high. For example, the correlation between the nine post-World War II presidents' cumulative pro-ADA percentages (Table 3) and a party dummy variable is 0.93. The correlation between presidents' annual pro-ADA percentages (Table 2) and a party dummy variable is 0.87. Thus, while a dummy variable reflecting the party of a president may not be the most preferred measure of presidents' ideological preferences, such a variable may be a reasonably accurate substitute for the pro-ADA percentages reported in Tables 2 and 3.     

The problem of indeterminacy in approval,multiple, and truncated voting systems

It is well known that a plurality election need not reflect the true sentiments of the electorate. Some of the proposed reform procedures, such as approval and cumulative voting, share the characteristics that there are several ways to tally each voter's preferences. Voting systems that permit truncated ballots share this feature. It is shown that the election results for any such procedure can be highly indeterminate; all possible election results can occur with the same choice of sincere voters. This conclusion of indeterminacy holds even when measures of voters' sentiments, such as the existence of a Condorcet winner or even much stronger measures, indicate there is considerable agreement among the voters. Then, multiple systems are compared with all standard tallying procedures. For instance, a corollary asserts it is probable for the plurality voting method to elect the Condorcet winner while approval voting has an indeterminate outcome.The work of both authors was supported, in part, by NSF Grant IST 8415348. This work was partially stimulated by comments concerning the assertions about approval voting and other systems that are discussed in (Saari, 1987). In particular, we are pleased to thank S. Brams, Carl Simon, and the other participants for their questions after one of us presented (Saari, 1987) at the July, 1984, Workshop on Mathematical Models in Political Science held at the University of Minnesota in Minneapolis.