Is approval voting an ‘unmitigated evil’?: A response to Brams,Fishburn, and Merrill

Brams, Fishburn, and Merrill (1988) contend that the indeterminacy of approval voting (AV), introduced in our paper (1988), is not a vice, but a surpassing virtue of AV. They do not compare the negative versus the positive features of AV, so their assertion remains a conjecture. Our response emphasizes the need to determine the costs of AV and to evaluate them against any merits. Moreover, by correcting and answering BFM's comments, the argument against AV becomes much stronger. This is because we show that AV's region of indeterminacy is quite large; it includes most profiles. Some of the consequences of this instability are that the AV outcome can negate the voter's true wishes, that the AV outcome can be volatile even to minor fluctuations of voter's decisions, and that AV is one of the most susceptible systems to manipulation by small groups of voters (for example, small, maverick groups could determine the AV outcome). Under specific circumstances, AV may be appropriate. To identify these situations we propose the more accurate name of the "Unsophisticated Voter System."     

Evolution and the Production of Rules—Some Preliminary Remarks

The notion of an evolutionary process was not imported from biology into social theory. The idea of spontaneous processes producing an unintended outcome was commonplace in the social sciences long before Darwin (Scottish Enlightenment).At whatever level an evolutionary perspective may be applied, it always presumes the operation of three mechanisms: (a) a mutation mechanism, i.e., a process by which constantly variation and novelty are introduced—in Popper's terms: new tentative solutions—(b) a selection mechanism, i.e a process of systematic selection among the variants—in Popper's terms: a process of error-elimination—(c) a replication mechanism, i. e., a process by which variants or tentative solutions are preserved, reproduced or propagated.Although both economists and biologists resort to equilibrium explanations—because a full and detailed specification of all causal forces cannot be given—the analogy between natural selection in biology and evolutionary processes in human societies is not that close.The selection mechanism that is operating in cultural evolution works directly on the behaviour pattern itself, i.e., on the rules that govern behaviour, without necessarily wiping out unfit carriers. Moreover, cultural evolution—which is a matter of trial and error learning and imitation—is very fast when compared with genetic evolution.Hayek works out the implications that follow from an evolutionary epistemology for the issue of socio-economic-political organization. His main subject is the social dimension of the knowledge problem or the problem of social learning. This problem has two distinct aspects.Hayek's theory of the spontaneous order of the market—which is best known for its emphasis on the capacity of markets to utilize dispersed knowledge—delivers the insight that if we want to generate in society any particular order of a certain degree of complexity, we should look for general rules of conduct which, if followed by individuals, would tend to induce that order to form spontaneously. Hayek presents an instrumental justification of a particular type of rules. Rules of just conduct exhibit certain structural characteristics—they are negative, purpose-independent, abstract, universal and permanent—but Hayek's account offers only a very general schema which has to be filled in in detail.As they are defined by Hayek, the general rules of conduct which allow for the formation of spontaneous orders, are not necessarily self-enforcing in the technical game-theoretic sense, contrarily to a widely held view.It is Hayek's emphasis on the theme of the interrelation between the system of rules and its systematic outcome at the level of the order of actions that qualifies him as a Law-and-Economics theorist.Hayek's theory of cultural evolution suggests that the abstract rules which contribute to the formation of a spontaneous order are themselves an unintended product of evolutionary processes. His theory of cultural evolution becomes disputable where it seems to argue that because of our incurable ignorance we ought necessarily to rely largely on unquestioned traditional rules instead of attempting to choose rationally or construct the system of rules that we want to follow.The question of how the different kinds of rules differ in their nature (rules of conduct vs organizational rules) must be distinguished from the question of how they originate (whether they spontaneously evolve or are deliberately designed). The two dimensions are conceptually distinct.The extension of the market analogy to the constitutional level, i.e., to the rules and institutions within which market coordination takes place, is not corroborated by the game-theoretic analysis of invisible-hand processes. This analysis does not warrant the conclusion that invisible-hand processes will always operate to generate efficient results.The game-theoretic analysis involves several simplifications however. The arguments that are based on it cannot be considered conclusive.The most developed parts of the theory of cultural evolution are the theory of nomos, as exemplified by the evolution of the common law, and the theory of the role of the judge.In the theory of the common law and the role of the judge the emphasis is on the coordination of individual activities through a process of systematic mutual adjustment of expectations. The function of the judge is to assure a maximal coincidence of—legitimate—expectations, i.e., to create a situation in which the chance to form correct expectations is as great as possible.The theory suggests that the role of the judge in making law is analogous with the role of an entrepreneur launching a new product: the entrepreneur is consciously trying to make a profit, thus unintentionally contributing to the overall allocation of resources. The judges, by upholding those rules which make it more likely that expectations will match and not conflict, are consciously trying to give greater internal coherence to the law. Each is unintentionally playing a part in the formation of a spontaneous order—in one case, the body of the common law, i.e., a system of rules of conduct conducive to the efficient operation of the order of actions which rests on it, in the other, the overall allocation of resources.The analogy is not flawless: while it seems plausible to assume that the entrepreneur, when unintentionally assisting in the overall allocation of resources, is trying to make a profit, i.e., is guided by the profit motive, it is not clear why we should assume that judges are guided by the search for greater coherence. With respect to the role of the entrepreneur, private vices may be supposed to coincide with public benefits, since only those entrepreneurs who de facto achieve positive profits in one way or another and can therefore be assumed to serve the interests of consumers better, will thrive and prosper, whereas entrepreneurs who do not succeed in doing so are eliminated sooner or later. But insofar as judges are public officials, the analogy seems to be particularly weak. Judges hardly constitute a homogeneous group and their interests and motivation may be highly varied.Insofar as judges adjudicate particular cases by means of custom and precedent, stare decisis can be said to account for the transmission or replication mechanism in the evolution of the law.It is explicitly recognized that grown law requires correction by legislation. It seems that legislation can be required both to generate novelty—i.e., as a mutation mechanism—and to eliminate errors in past developments—i.e., as a selection mechanism.Evolutionary analysis as such does not provide us with a satisfactory normative framework for comparative institutional analysis. Hayek's limits of reason argument implies that, at least to some extent, we will have to rely on the explorative potential of open-ended, competitive, evolutionary processes and on the kind of experience that accumulates in trial and error learning processes. But it should not imply that we adopt an attitude of uncritical acquiescence in evolutionary drift.One direction in which such a framework for comparative institutional analysis has been explored recently, is provided by the research programme of Constitutional Political Economy. The basic framework is derived from the contractarian analysis of multi-level individual choice.An alternative direction in which the evolutionary perspective may be provided with a normative benchmark consists of complementing it with a realist ethical theory. Popper has found in evolutionary theory a forceful argument for objectivism and realism. An elaboration of this theme would go beyond the scope of the domain of Law-and-Economics.     

German Income Tax Policy Between Equity and Efficiency

Equity and efficiency are usually regarded as the main objectives of tax policy. Commenting on Dr. Reginald Hansen's doctoral dissertation, the author analyses the meaning of the equity-efficiency trade-off framework in the context of the ongoing debate regarding the reform of the German income-tax system. Schmoller's and Wagner's contrasting conceptions of income taxation are discussed. The role of the tax law as an instrument of interventionism within the framework of the social market economy, especially through the use of tax incentives, is highlighted. Contrary to Dr. Hansen, the author adopts an Austrian viewpoint and argues that both the (catallactic) efficiency and equity of tax incentives are disputable, especially but not uniquely through their (ab)use in tax shelter constructions.     

Organized crime, corruption and power

The perception of organised crime as an external threat to political stability and integrity, as well as to orthodox commercial activity, is based on an assumption about the motives and intentions of organised criminals. It invariably results in a call for a war against crime. The reality and the possible solutions are less dramatic but also more complex. Organised criminals are concerned with both legal and illegal businesses where bribery of public officials and involvement with orthodox commercial activity are part of that business. While organised criminals may want to enjoy the profits of their business rather than subvert societies what they do and how they do it can have adverse consequences for societies and should be addressed. In seeking to do this, however, it is necessary not only to analyse threats to target resources more effectively but also discourage those public figures and orthodox businesses whose enthusiasm for short-term benefit overrides their moral judgement and thus allows organised crime to be tolerated within the societies to which they are supposed to be an external threat.     

Drivers and Consequences of Citizen Satisfaction: An Application of the American Customer Satisfaction Index Model to New York City

Using data from two telephone surveys of New York City residents conducted during 2000 and 2001, this article employs the American Customer Satisfaction Index (ACSI) model to examine the drivers—and behavioral consequences—of overall satisfaction with local government services. While the ACSI model has been widely used to analyze customer satisfaction in the private sector and, more recently, in the federal government, it has not been tried in a local government context. Applying the ACSI model to New York City, we find the perceived quality of public schools and especially the police, as well as road conditions and subway service, are the most salient drivers of satisfaction, but the significance of each service varies across income, race, and geography. For all groups in the city, overall satisfaction drives both trust in local government officials and intentions to move out of the city. Advantages and limitations of using the ACSI model to assess the quality of local government services are discussed.     

Introduction 15th annual conference of the european association of law and economics, utrecht, the netherlands, september 1998

This issue of the International Review of Law and Economics contains a selection of papers presented at the 15^th Annual Conference of the European Association of Law and Economics (EALE). It was the first time that the annual conference of the EALE was held in the Netherlands. It took place at Utrecht, in September 1998.Approximately 40 papers were presented at the conference. Many of these papers were submitted to this issue of the International Review of Law and Economics, and we were obliged to face the difficult task of selection. In this task we were helped by anonymous referees, who deserve much credit for their delicate task. The issue opens with the text of the invited lecture by Chief Judge Richard Posner on “Employment Discrimination: Age Discrimination and Sexual Harassment.” After this lecture, seven refereed papers are published. They cover a wide range of topics and include theoretical and empirical approaches.The first two articles are empirical studies. In their article “The Dynamics of Pretrial Negotiation in France: Is there a Deadline Effect in the French Legal System?,” Bruno Deffains and Myriam Doriat provide empirical evidence on pretrial negotiation in France with the primary goal being to determine whether there is a deadline effect. Theoretical and experimental studies generally show that in pretrial litigation most claims are settled just before the negotiation deadline, i.e., at the door of the court. Using data on civil law conflicts in France, the authors demonstrate that although the out-of-court settlement rate is relatively low, a deadline effect exists in the French legal system. The article complements the theoretical and experimental literature in the field of pretrial negotiation and provides additional insights into the functioning of the legal system.The article “Modeling Crime and the Law Enforcement System” by Frank van Tulder and Abraham van der Torre presents a macroeconomic model of the Dutch criminal justice system. The empirical estimations show that demographic, social, and economic factors and the results of the law enforcement system influence the number of crimes. It is found that a rise in the clear-up rate reduces the crime rate, whereas the average term of imprisonment has a negative impact on violence. A growth in the number of young men, divorced persons, unemployed, drug addicts, and motor vehicles—each per capita—and a rise in income inequalities have a boosting effect on one or more types of crime.The third article by Michael Faure and Paul Fenn is concerned with the costs and benefits of making liability for accidents retroactive, given the availability of liability insurance. The authors distinguish between the injurer’s perceived risk that the standard of care applied by the courts will differ from his chosen level of care, where this perceived risk is based on precedent or current practice, and the genuine uncertainty that the standard of care may change in the future as a result of unknown developments in the technology of care. While the injurer’s probability distribution over liability may be the same in each of these cases, he may be far less confident about the reliability of the probability distribution as a guide to choice in the latter case. In principle, the risk of liability arising from an unknown standard of care could be transferred to a liability insurer through the purchase of occurrence coverage. However, in addition to the usual source of difficulty for insurance markets as a result of information asymmetry, insurers also may have distaste for ambiguity. The authors show that this could in some circumstances lead to market failure in the provision of occurrence policies. These welfare losses from inefficient risk sharing as a consequence of retroactivity must, therefore, be set against the potential welfare gains from improved incentives for injurers to seek out information on care technology, as well as the concerns over distributive justice.In their article “Unitary States and Peripheral Regions: A Model of Heterogeneous Spatial Clubs” Jean-Michel Josselin and Alain Marciano develop an analytical framework for understanding the limits of constitutional unity. Their microeconomic model of unitary states deals with two kinds of heterogeneity. First, preference distance or physical distance account for decreasing net benefits from expansion. Second, heterogeneity may involve a discontinuity in the spatial pattern of preferences: “Peripheral behaviors” threaten unity. The authors integrate such behaviors into the model and draw some lessons as to the nature of an optimal constitutional area, discussing in particular the status of peripheral regions.The fifth article by Benito Arrunada, entitled “The Provision of Non-Audit Services by Auditors: Let the Market Evolve and Decide,” searches for and defines efficient regulation of the provision of non-audit services by auditors to their audit clients. From an examination of the particular problems posed by these services, it is concluded that they reduce total costs, increase technical competence, and stimulate more intense competition. Furthermore, they do not necessarily damage auditor independence or the quality of non-audit services. This assessment leads to recommending that legislative policy should aim at facilitating the development and use of the safeguards provided by the free action of market forces. Particular emphasis is placed on the role played by fee income diversification and the enhancement, through disclosure rules, of market incentives to diversify. A rule of mandatory disclosure of client diversification is examined to facilitate the task of the market with regard to achieving the optimal degree of auditor independence.In the next article, Antony Dnes applies the economic analysis of law to examine recent proposals in England and Wales for the reform of the law affecting financial settlement following divorce. Two specific measures have been proposed to reduce judicial discretion: a mathematical formula (such as a rebuttable presumption to divide equally the whole pool of assets during divorce) to be applied in the absence of agreement between the parties, or the enforcement of prenuptial agreements. The author concludes that these measures should be welfare improving but would need to be forward looking and applied to marriages, rather than divorces.The last article by Niva Elkin-Koren and Eli Salzberger provides a look at the changing world of law with the emergence of cyberspace from the perspective of the economic approach to law. The authors argue that the Chicago paradigm cannot be of much help to analyze law in and of cyberspace. While cyberspace reduces the traditional causes of monopolies, it introduces new types of monopolies that are the consequence of control over technologies rather than of price and demand curves. Second, the strict correlation between markets and states does not exist in cyberspace. The authors equally point at the weaknesses of transaction cost analysis. The Coaseian analysis assumes a given state of technology and overlooks the correlation and reciprocity between technological developments and legal rules. The authors consider neoinstitutional law and economics as the most suitable framework for examining the changing world of cyberspace, but they suggest some refinements. Cyberspace invites a reassessment of the borders between markets and hierarchies and poses special challenges to the paradigmatic assumption of rational behavior.