The Unanimous Voting Rule is not the Political Equivalent to Market Exchange

The unanimous voting rule is often viewed as analogous tovoluntary market exchange. This paper demonstrates that whenthird-party pecuniary effects exist, this analogy breaks downbecause unlike markets, unanimous voting requires compensationfor these effects. Thus, efficient market outcomes typically willbe rejected by the unanimous voting rule. Even when transactionscosts are low enough to make compensation feasible, the political outcome under unanimity will differ from the market outcome. The distributional effects of unanimityprovide the incentive for people to substitute rent-seekingbehavior for productive activity, and reduce the incentive forproductive change, providing additional reasons why a less-than-unanimous voting rule may be optimal when resources are to beallocated politically.