Should we let people sell votes?

Mankiw says no, Caplan says the real problem is voting itself.  Of course we let private shareholders sell their votes all the time, and uncontroversially, so the real issue is how politics is different. 

Say society has a 9999 people.  The marginal private value of a (political) vote is almost zero, except for its feel-good benefit (see also Gelman on altruistic motives to motivate voting).  Yet the total value of 5000 votes — a winning tally — is the size of the largest wealth transfer that the winner could impose on everyone else.  The result will mimic a model of self-interested voting but with only one self-interested voter — the owner of the purchased votes — having a say.  And that winner will be the conscience-less (non-liquidity-constrained) person who has the most to gain from buying up votes and getting things his way.

Of course Bryan, in other contexts, has shown that expressive voting is more likely than the self-interested voting model, at least under standard democracy.  I would rather have expressive voting than what is explained directly above, even though expressive voting is somewhat irrational. 

Maybe voters will end up with sudden attacks of conscientiousness and be unwilling to sell their votes; to that extent vote-selling won’t much matter and of course then it can’t bring gains either.

Now let’s go back to the corporate case.  When it comes to policy, shareholders might not agree on means but everyone favors the same end of profit maximization.  A winning coalition of shareholders can’t do much to extract rents from other shareholders, unless of course they are exploiting those other shareholders in their other roles as consumers or input suppliers.  But such effects are usually small (as opposed to the widespread possibilities for redistribution through politics) and thus vote selling works just fine for corporations.  There is no simple way that shareholder A can buy up the votes of shareholders B and C and then just screw them over.

Coda: There is a potential problem with vote-selling in corporations, again relating back to the difference between marginal and average value for a vote.  Shareholders might be afraid to sell to a takeover artist, instead wishing to hold on for the ride and reap gains from the change in corporate control.  But if no one sells the takeover cannot take place and no one reaps the gains.  In other words, there is too little vote selling; that’s Grossman and Hart, 1980.  Alex once wrote an excellent paper on this problem (but where is the link Alex?) and showed that the free-rider problem among shareholders can usually be solved by random Nash strategies; note that the final outcome will depend on whether there is a countable or uncountable infinity of shareholders; please don’t laugh!

The bottom line: There are good economic arguments for why we allow corporate vote-selling but not political vote-selling.

Comments

There's been some research on storable votes (Casella) and qualitative voting (Hortala-Vallve) which is not so far away. The idea loosely is that voting is purely ordinal and, it makes sense to get some kind of cardinal measures. At least for a single person between issues/elections, so why not trade my vote in an election where I don't care much for the outcome to one where I care (and you don't). This looks a lot like vote buying/selling but there's no outside money - the designer sets the endowment, which makes the whole thing a bit more palatable.

"so the real issue is how politics is different"

Um, because corporations are voluntary arrangements and government is not?

Charles Blankart and Gerrit Koester write:

"Gordon Tullock offers the simple vote-transfer mechanism (1967). Every adult person is a member of the parliament (as in a popular assembly). Citizens can transfer their vote to anyone they so choose. The natural choice is a person whom they expect to have nearly the same preferences and to vote as they would. Those who go to parliament will vote with as many votes as they become the representative of."

"Accountability increases because representative shirking is easily observed, and voters select representatives in a contestable market. As representatives are linked more closely to their voters, the transmission of preferences into politics will be less distorted. Under such a regime, representatives would not necessarily join a fixed coalition, but rather aim at increasing their 're-election' probability by voting issue by issue as closely as possible to their voters’ preferences. And the government would no longer be either parliamentary or presidential (in the American sense)."

More at p. 177 of:

http://www.econjournalwatch.org/pdf/BlankartKoesterSymposiumMay2007.pdf

Actually, corporate shareholders cannot sell votes. They can only sell their shares; the voting rights are not alienable from the share, unless the firm's governance structure was set up to allow something equivalent to vote selling in the first place (e.g., dual-class stock).

"When it comes to policy, shareholders might not agree on means but everyone favors the same end of profit maximization."

Uh, no Tyler, this is false. As an investment professional I can tell you that most shareowners support profit maximizing behavior most of the time. It is NOT the case that ALL shareholders support profit maximization ALL of the time...not even close in fact.

Many many shareholders have a vague belief in corporate responsibility and support firms doing things that may be good for society but are not good for the bottom line. Then there are the individuals and funds that specifically engage in green, or social conscious etc. investing. Some folks simply don't buy certain stocks, others buy stock with the hope of causing changes in corporate behavior. Then there may be employee shareholders such as union members who have reason to oppose profit maximizing behavior. Sometimes executives (who are themselves big shareowners) push for actions that do not maximize profit because they want to feel good and look socially responsible to their peers. Take Hank Paulson and some of the environmental work he had GS do as an example. Or executives may wish to empire build or simply increase their pay packages. Examples of shareholders with interests other than profit-maximizing behavior can go on and on.

The simple fact is that for a variety of reasons shareholders are simply not unified behind profit maximization. Looking at a corporation as a unitary rational actor united behind the bottom line is not accurate. There are too many conflicting beliefs and interests.

A winning coalition of shareholders can't do much to extract rents from other shareholders,

Nonsense. Corporate control has enormous value.

A winning coalition of shareholders can't do much to extract rents from other shareholders

Can someone remind me -- and I'm genuinely curious here -- what stops a 50%+1-holding coalition from permanently suspending the dividend and voting themselves a "salary" that would have been the dividend?

Oh, and btw, the number of shareholders is countable and finite.

This problem of empty voting arises quite frequently in the M&A context, and many lawyers, judges, and law-and-economics scholars are no longer quite so sanguine about vote-selling.

The empty vote derivative is a much better analogy to political voting than normal (non-empty) voting shares. Political votes, like empty votes, are not tied to any particular share of ownership, tax payment, or similar. If empty voting is becoming a small problem in the corporate world, political voting is probably already a big problem in the political world.

On the other hand, empty voting in the political world may be a very good thing, because we don't policies based on maximizing the profit of tax collection. The information-free nature of voting may be a feature, not a bug. A similar protective effect might be obtained by setting tax rates and government budgets by a random number generator, rather than letting any self-serving group of people set them.

But don't we essentially sell our political votes? Voting patterns seem to favor the politician that promises the most stuff.

Sure, its not a direct transfer, but its not far off.

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