An economic theory of political action in a democracy

An Economic Theory of Political Action in a Democracy Anthony Downs The Journal of Political Economy, Vol. 65, No. 2. (Apr., 1957), pp. 135-150. Stable URL: http://links.jstor.org/sici?sici=0022-3808%28195704%2965%3A2%3C135%3AAETOPA%3E2.0.CO%3B2-F The Journal of Political Economy is currently published by The University of Chicago Press. Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at http://www.jstor.org/about/terms.html. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at http://www.jstor.org/journals/ucpress.html. 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For more information regarding JSTOR, please contact support@jstor.org. http://www.jstor.org Mon Feb 25 07:40:47 2008 AN ECOSOMIC THEORY O F POLITICAL ACTION IN A DEMOCRACY1 ANTHONY DOWNS Chicago, Illinois I best system uf public finance is that which secures the maximum social advantage from the operatiolls \vhich it collducts.~ SPITE of the tremendous importance of government decisions in every phase of economic life, eco- A similar attempt to differentiate the nomic theorists have never success- operations "proper" to government from fully integrated government with pri- those "proper" to private agents has lV. Peck, who vate decision-makers in a single gen- been made "If public operation of a n enterwrites: eral theory. Instead they P ~ ~ produce ~ " a greater ~ ~ net~ social have treated government action as an utility, the services rendered by this enexogenous variable, determined by terprise in the category Of litical considerations that lie outside the public goods."' I n addition, several welpurview of economics This view is really a carry-over from the classical prenlise fare economists have posited general that the private sector is a self-regulating principles to guide government acti0n in mechanism and that any government the 'Or Abba P. action beyond maintenance of law and Lerner indirectly states such a rule when order is "interference" with it rather he says: "If it is desired to maximize the than an intrinsic part of it." total satisfaction in a society, the rationHowever, in at least two fields of eco- al procedure is to divide income on an basis.''" nomic theory, the centrality of governAdmittedly, this list of examples is not ment action has forced economists to forlong, primarily because Overt 'tatemulate rules that indicate hoLVgovernments of a decision rule to guide government "should" make decisions. Thus in ment action are extremely rare in ecothe field of public finance, Hugh Dalton nomic theory. However, it does not unstates: duly distort reality to state that most .ISa result of [the] operations of public welfare economists and many public finance, changes take place in the amount antl finance theorists implicitly assume that in the nature of the Lvealth which is pl.oduceti, antl in the distribution of that Lvealth among the "proper" function of government is individuals and classes. Are these changes in to maximize social welfare. Insofar as their aggregate effects socially advantageous? they face the problem of government de- I N If so theoperations are justified; if not, not. The The argument presented in this article will be tleveloped further in 111y forthcon~ingbook, .4t1 Economic I'lzeory of Democracy, to be published by Harper & Bros. 2 See Gerhard Colm, E s s a y s i n Public Finance and Fiscal Policy (Xew 'T'ork: Oxford University Press, 1955), pp. G 8 . 3 T h e Principles of Public Finance (London: George Koutledge & Sons, Ltd., 1932), pp. 9-10. ' Taxatiott and Welfare (New York: i\Iacmillan Co., 1925), pp. 30-36, as quoted in Harold M. Groves (ed.), Viewpoints i n Public Finance (New York: Henry Holt & Co., 1948), p. 551. T h e Economics of Control (New York: Macmillan Co., 1914), p. 32. 135 cision-making a t all, they nearly all subscribe to some approximation of this normative rule. The use of this rule has led to two major difficulties. First, it is not clear what is meant by "social welfare," nor is there any agreement about how to "maximize" it. I n fact, a long controversy about the nature of social welfare in the "new welfare economics" led to Kenneth Arrow's conclusion that no rational method of maximizing social welfare can possibly be found unless strong restrictions are placed on the preference orderings of the individuals in ~ o c i e t y . ~ The complexities of this problem have diverted attention from the second diflculty raised by the view that government's function is to maximize social welfare. Even if social welfare could be defined, and methods of maximizing it could be agreed upon, what reason is there to believe that the men who run the government would be motivated to maximize it? T o state that they "should" do so does not mean that they will. As Schumpeter. one of the few econonlists who have faced this problem, has pointed out: I t does not follow t h a t the social meaning of a type of activity will necessarily provide the motive power, hence t h e explanation of the latter. If it does not, a theory t h a t c o ~ l t e n t s itself with a n analysis of the social enti o r need to be served cannot b e accepted as a n adequate account of the activities t h a t serve it.' Schumpeter here illuminates a crucial objection to most attempts to deal with government in economic theory: they do not really treat the government as part of the division of labor. Every agent in the division of labor has both a private motive and a social function. For exSocial Choice and Indiuidual Values (hTew York: John Wiley & Sons, 1951). 7 Joseph A. Schumpeter, Capitalisnt, Socialism, and Democracy (New York: Harper & Bros., 1950), p. 282. 6 ample, the social function of a coal-miner is reinoving coal from the ground, since this activity provides utility for others. But he is motivated to carry out this function by his desire to earn income, not by any desire to benefit others. Similarly, every other agent in the division of labor carries out his social function primarily as a means of attaining his own private ends: the enjoyment of income, prestige, or power. hluch of economic theory consists in essence of proving that men thus pursuing their own ends may nevertheless carry out their social functions with great efficiency, a t least under certain conditions. I n light of this reasoning, any attempt to construct a theory of government action without discussing the motives of those who run the government must be regarded as inconsistent with the main body of economic analysis. Every such attempt fails to face the fact that governments are concrete institutions run by men, because it deals with them on a purely normative level. As a result, these attempts can never lead to an integration of government with other decision-makers in a general equilibrium theory. Such integration demands a positive approach that explains how the governors are led to act by their own selfish motives. I n the following sections, I present a model of government decision-making based on this approach. I n building this model, 1 shall use the following definitions : 1. Govertzrneuit is t h a t agency in the division of labor which h a s t h e power to coerce all other agents in society; i t is the locui of "ultimate" power in a given area.8 *This definition is taken from Robert A. Dahl and Charles E. Lindblom, Politics, economic^, dr~d Welfare (New York: Harper & Bros., 1953), p. 42. However, throughout most of my analysis the word "government" refers to the governing party rather than the institution as here defined. 2. :l dcrtto~racyis a political system t h a t exhibits the following characteristics: a ) Two o r more parties compete in periodic elections for control of the governing apparatus. 11) T h e p a r t y (or coalition of parties) winning a majority of votes gains control of the governing apparatus until the next election. r ) Losing parties never a t t e m p t to prevent the \rinners from taking office, nor do ~ r i n n e r su se the powers of office to vitiate the ability of losers to compete in the next election. d) .Ill qane, law-abiding adults who are governed are citizens, and e v e r r citizen has one a n d only one vote in each election. t ~ o npartic< or of ~ n d ~ v i t l u aCl ~ I I L ~ IuInSl,~ s \ they seek to overthrow it b y force. 5. Every agent in the model-whether an individual, a p a r t y or a private coalitionbehaves rationally a t all times; t h a t is, i t proceeds toward its goals n i t h a minimal use of scarce resources a n d undertakes only those actions for ivhich niarginal return cxceeds marginal cost.'O From these definitions and axioms springs my central hypothesis: political parties in a democracy formulate policy strictly as a means of gaining votes. They do not seek to gain otiice in order to carry out certain preconceived policies or to serve any particular interest groups; Though these definitions are both some- rather they formulate policies and serve what ambiguous, they will suffice for interest groups in order to gain oflice. present purposes. Thus their social function-which is to Kext I set forth the following axioms: formulate and carry out policies when in accom1. Each political p a r t y is a team of men 1% ho power as the government-is seek office solely in order to enjoy the in- plished as a by-product of their private come, prestige, and power t h a t go with motive --which is to attain the income, running the governing a p p a r a t u ~ . ~ power, and prestige of being in office. 2. T h e winning p a r t y (or coalition) has comThis hypothesis implies that, in a deplete control over the government's actions until the next election. There are no votes mocracy, the government always acts so of confidence between elections either b y a as to maximize the number of votes it legislature or b y the electorate, so the will receive. I n effect, it is an entrepregoverning p a r t y cannot b e ousted hefore neur selling policies for votes instead of the next election. I i o r are a n y of its orders rcsisted or sal~otaged by a n intransigent products for money. Furthermore, it must compete for votes with other parbureaucracy. 3. (;ovc:rnmcnt's economic powers are un- ties, just as two or more oligopolists comlimitcti. I t can nationalize everything, pete for sales in a market. IIhether or hand everything over to private interests, not such a government maximizes social o r strike a n y balance between these exwelfare (assuming this process can be detremcs. 4. 'I'he only limit o n government's powers is fined) depends upon how the competitive t h a t the incumbent p a r t y cannot in a n y struggle for power influences its behav\yay restrict the political freedom of opposiior. 1I-e cannot assume a priori that this behavior is socially optimal any more ".\ ''team" is a coalition whose memhers have identical goals. .\ "coalition" is a group of men ~vho than we can assume a priori that a given co-operate to achieve some common end. 'l'hese (letinitions are taken from Jacob Narschak, firm produces the socially optimal out"l'o~vards an Econorr~ic Theory of Organization put. and Information," in Decision Processes, ed. R. 11. 'Thrall, C. H. Coonil~s,and R. I,. Davis (New York: John \Vile). & Sons, 1954), pp. 188-89. I use "team" instead of "coalition" in my definition to eliminate intraparty power struggles from consideration, though in hlarschak's terms parties are really coalitions, not teams. *" ?'he tern1 "rational" in this article is synoriytnous with "efficient." This economic definition must not be confused with the logical definition (i.e., pertaining to logical propositions) or the psgchological definition (i.e., calculating or unemotional). 138 AX'rHONY DOWNS I shall examine the nature of government decision-making in two contexts: (1) in a world in which there is perfect knowledge and information is costless and (2) in a world in which knowledge is imperfect and information is costly. Because the citizens of our model democracy are rational, each of them views elections strictly as means of selecting the government most beneficial to him. Each citizen estimates the utility income from government action he expects each party would provide him if it were in power in the forthcoming election period, The analysis of government decision- that is, he first estimates the utility inmaking in a perfectly-informed world is come Party A would provide him, then the intended only to highlight the basic rela- income Party B would provide, and so on. tionship between a democratic govern- He votes for whatever party he believes ment and its citizens. This relationship would provide him with the highest utilican be stated in the following set of t y income from government action. The primary factor influencing his estimate of propositions : each party's future performance is not its 1. The actions of the government arc a function of the Fvay it expects voters to vote and campaign promises about the future but of the strategies of its opposition. its performance (luring the period just 2. The government expects voters to vote ending. Thus his voting decision is based according to ( a ) changes in their utility on a comparison of the utility income he incomes from government activity and ( h ) actually received during this period from the strategies of opposition parties. 3. Voters actually vote according to ( 0 ) the actions of the incumbent party and changes in their utility incomes from gov- those he believes he would have received ernment activity and ( h ) the alternatives had each of the opposition parties been offered by the opposition l 1 in power (I assume that each opposition 4. Voters' utility incomes from government party has taken a verbal stand on every activity depend on the actions taken by issue dealt with concretely by the ingovernment during the election period. 5. The ~tratcgiesof opposition parties depetitl cumbents) This procedure allows him to on their views of the voters' utility income5 found his decision on facts rather than on from government activity and on the actions conjectures. Of course, since he is helping taken b>- the government in power. to choose a future government, he modiThese propositions actually form a set fies his analysis of each party's past perof five equations containing five un- formance according to his estimate of knowns: expected votes, actual votes, probable changes in its behavior. Nevcropposition strategies, government ac- theless, the current record of the incumtions, and individual utility incomes from bents remains the central item in his government activity. Thus the political evaluation. The government also makes tlecision5 structure of a democracy can be viewed in terms of a set of simultaneous equa- rationally, but its 1)ehavior is not so easy tions similar to those often used to ana- to analyze. l~ecauseit is engaged in politilyze an economic structure. cal warfare with its opponents. Each part y resembles a player in an iY-person fl In a perfectly informed world, voters al\va)s game or an oligopolist engaged in cutvote exactly the way government expects them to, so the relationships expressed in Nos. 2 and 3 are throat competition. However, the conidentical. But in an imperfectly informed uorld, the jectural variation 1)rot)lern is solnewhat government does not alnays know what voters will simplified, because the incumbent party do; hence Nos. 2 and 3 may differ. E('OS0PIIIC THEORY OF POLTTICrlL AC'I'IOX I S A 1)EhIOCKACY 139 must always commit itself on each issue rest of my analysis to the impact of imbefore the opposition parties do. Since it perfect knowledge upon political action is in power, it must act whenever the oc- in a democracy. I n this model, imperfect knowledge casion for a decision arises, if failure to respond is counted as a form of action. means (1) that parties do not always Hut the opposition, which is not respon- know exactly what citizens want : (2) that sible for the government, can wait until citizens do not always know what the the pressure of events has forced the gov- government or its opposition has done, is erning party to commit itself. Thus oppo- doing, or should be doing to serve their sition parties have a strategic advantage interests; and (3) that the information -which incidentally makes the analysis needed to overcome both types of ignoof interparty warfare simpler than it rance is costly-in other words, that would be if all parties revealed their scarce resources must be used to procure and assimilate it. Although these condistrategies simultaneously. However, I shall not explore party tions have many effects upon the operastrategies in a perfectly informed world, tion of government in the model, I conbecause nearly all the conclusions that centrate on only three: persuasion, idecould be drawn are inapplicable to the ologies, and rational ignorance. imperfectly informed world in which we are primarily interested. Only one point As long as we retain the assuinl~tionof should 1,e stressed: in a world where perfect knowledge prevails, the government perfect knowledge, no citizen can possigives the preferences of each citizen ex- bly influence another's vote. Each knows actly the same weight as those of every what would benefit him most, what the other citizen. This does not mean that its government is doing, and what other parpolicies favor all citizens equally, since ties would do if they were in pourer. strategic considerations may lead it to Therefore, the citizen's political taste ignore some citizens and to woo others structure, which I assume to be fixed, ardently or to favor some with one poli- leads him directly to an unambiguous cy and others with another. But it never decision about how he should vote. If he deliberately eschews the vote of Citizen remains rational, no persuasion can .\ to gain that of Citizen R. Since each change his mind. But, as soon as ignorance appears, the citizen has one and only one vote, it cannot gain by trading A's vote for R's, clear path from taste structure to voting ceteris paribus. I n short, the equality of decision becomes obscured by lack of franchise is successful as a device for dis- knowledge. Though some voters want a tributing political power equally among specific party t o win because its policies are clearly the most beneficial to them. citizens. others are highly uncertain about which party they prefer. They are not sure just Lack of conlplete inforilzatioil on what is happening to them or what would which to base decisions is a condition so happen t o them if another party were in basic to human life that it influences the power. They need more facts to establish structure of almost every social institu- a clear preference. By providing these tion. In politics especially, its effects are facts, persuaders can become effective. Persuaders are not interested per se in profound. For this reason, I devote the 140 AX'rHONY DOWNS helping people who are uncertain become less so; they want to produce a decision that aids their cause. Therefore, they provide only those facts which are favorable to whatever group they are supporting. Thus, even if we assume that no erroneous or false data exist, some men are able to influence others by presenting them with a biased selection of facts. This possibility has several extraordinarily important consequences for the operation of government. First, it means that some men are more important than others politically, because they can influence more votes than they themselves cast. Since it takes scarce resources to provide information to hesitant citizens, men who command such resources are able to wield more than proportional political influence, ceteris paribus. The government, being rational, cannot overlook this fact in designing policy. As a result, equality of franchise no longer assures net equality of influence over government action. I n fact, it is irrational for a democratic government to treat its citizens with equal deference in a world in which knowledge is imperfect. Second, the government is itself ignorant of what its citizens want it to do. Therefore it must send out representatives (1) to sound out the electorate and discover their desires and (2) to persuade them it should be re-elected. I n other words, lack of information converts democratic government into representative government, because it forces the central planning board of the governing party to rely upon agents scattered throughout the electorate. Such reliance amounts to a decentralization of government power from the planning board to the agents.12 The central board continues to decenl2 Decentralization may be geographical or by social groups, depending upon the way society is divided into homogeneous parts. tralize its power until the marginal votegain from greater conformity to popular desires is equal to the marginal vote-loss caused by reduced ability to co-ordinate its actions. This reasoning implies that a democratic government in a rational world will always be run on a quasi-representative, quasi-decentralized basis, no matter what its formal constitutional structure. as long as communication between the voters and the governors is less than perfect. Another powerful force working in the same direction is the division of labor. To be efficient, a nation must devel 013 specialists in discovering, transmitting, and analyzing popular opinion, just as it develops specialists in everything else. These specialists are the representatives. They exercise more power, and the central planning board exercises less, the less efficient are communication facilities in society. The third consequence of imperfect knowledge and the resulting need for persuasion is really a comhination of the first two. Because some voters can be influenced, specialists in influencing them appear. And, because government needs intermediaries between it and the people, some of these influencers pose as "representatives'' of the citizenry. On one hand, they attempt to convince the government that the policies they stand for which are of direct benefit to themselves -are both good for and desired by a large portion of the electorate. On the other hand, they try to convince the electorate that these policies are in fact desirable. Thus one of their methods of getting government lo believe that public opinion supports them is to create favorable opinion through persuasion. Though a rational government will discount their claims, it cannot ignore them altogether. I t must give the influencers more than proportional weight in forming policy, because they may have succeeded in creating favorable opinions in the silent mass of voters and because their vociferousness indicates a high intensity of desire. Clearly, people with an intense interest in some policy are more likely to base their votes upon it alone than are those who count it as just another issue; hence government must pay more attention to the former than the latter. To do otherwise would be irrational. Finally, imperfect knowledge makes the governing party susceptible to bribery. I n order to persuade voters that its policies are good for them, it needs scarce resources, such as television time, money for propaganda, and pay for precinct captains. One way to get such resources is to sell policy favors to those who can pay for them, either by campaign contributions, favorable editorial policies, or direct influence over others. Such favor buyers need not even pose as representatives of the people. They merely exchange their political help for policy favors -a transaction eminently rational for both themselves and the government. Essentially, inequality of political influence is a necessary result of imperfect information, given an unequal distribution of wealth and income in society. \Then knowledge is imperfect, effective political action requires the use of economic resources to meet the cost of information. Therefore, those who command such resources are able to swing more than their proportional weight politically. This outconle is not the result of irrationality or dishonesty. On the contrary, lobbying in a democracy is a highly rational response to the lack of perfect information, as is government's submission to the demands of lobbyists. To suppose otherwise is to ignore the existence of information costs --that is, to theorize about a mythical world instead of the real one. Imperfect knowledge allows the unequal distributions of income, position, and influence-which are all inevitable in any economy marked by an extensive division of labor-to share sovereignty in a realm where only the equal distribution of votes is supposed to reign. Since the parties in this model have no interest per se in creating any particular type of society, the universal prevalence of ideologies in democratic politics appears to contradict my hypothesis. But this appearance is false. I n fact, not only the existence of ideologies, but also many of their particular characteristics, may be deduced from the premise that parties seek office solely for the income, power, and prestige that accompany it.13.4gain, imperfect knowledge is the key factor. I n a complex society the cost in time alone of comparing all the ways in which the policies of competing parties differ is staggering. Furthermore, citizens do not always have enough information to appraise the differences of which they are aware. Nor do they know in advance what problems the government is likely to face in the coming election period. Under these conditions many a voter finds party ideologies useful because they remove the necessity for relating every issue to his own conception of "the good society." Ideologies help him focus attention on the differences between parties; therefore, they can be used as samples of all the differentiating stands. Furthermore, if the voter discovers a correlation between each party's ideology l 3 1 define "ideologies" as verbal images of "the good society" and of the chief policies to be used in creating it. 142 ANTHONY DOU'SS and its policies, he can rationally vote by comparing ideologies rather than policies. I n both cases he can drastically reduce his outlay on political information by informing himself only about ideologies instead of about a wide range of issues. Thus lack of information creates a demand for ideologies in the electorate. Since political parties are eager to seize any method of gaining votes available to them, they respond by creating a supply. 1;ach party invents an ideology in order to attract the votes of those citizens who wish to cut costs by voting ideologically.'-' This reasoning does not mean that parties can change ideologies as though they were disguises, putting on whatever costume suits the situation. Once a party has placed its ideology "on the market," it cannot suddenly abandon or radically alter that ideology without convincing the voters that it is unreliable. Since voters are rational, they refuse to support unreliable parties; hence no party can afford to acquire a reputation for dishonesty. Furthermore, there must be some persistent correlation between each party's ideology and its subsequent actions; otherwise voters will eventually eschew ideological voting as irrational. Finally, parties cannot adopt identical ideologies, because they must create enough product differentiation to make theii output distinguishable from that of their rivals, so as to entice voters to the 1,011s. However, just as in the product market, any markedly successful ideology is soon imitated, and differentiation takes place on more subtle levels. '"11 reality, party ideologies prol)ably stem originally frorn the interests of those persons who found each party. But, once a political party is created, it takes on an existence of its own and eventually hecomes relatively independent of any particular interest group. When such autonomy prevails, my analysis of itleologies is fully applicable. Analysis of political ideologies can be carried even further by means of a spatial analogy for political action. To construct this analogy, I borrow and elaborate upon a n apparatus first used by Harold Hotelling in his famous article "Stability in Competition."15 My version of Hotelling's spatial market consists of a linear scale running from zero to one hundred in the usual left-to-right fashion. To render it politically meaningful, I make the following assumptions: I . The political parties in any society can be ordered from left to right in a manner agreeti upon by all voters. 2. Each voter's preferences are single-peaked a t some point on the scale and slope monotoilicall>. do\\nnard on either side of the peak (unless it lies a t one extreme of the scale). 3. The frequent) distribution of voters along the scale is variable from society to society but fixed iil any one iociety.'" 1. Once placed on the pc~liticalscale, a party can move ideologically either to the left or to the right up to but not beyond the nearest party tonard \r hich it is moving." 5. In a t\\o-party system, if either part) moves a n a y from the extreme nearest it to\rard the other party, cxtiernist voters a t its end of the scale map abstain because they see no significant difference betn een the choices offeretf thern.I0 Under these conditions IIotelling's conclusion that the parties in a two-party system inevitably converge on the center does not necessarily hold true. If voters l G Actually, this distril)ution may vary in any orle society even in the short run, but I assume it to he fixed in order to avoid discussing the complex of historical, sociological, psychological, and other factors which cause it to change. l 7 I t cannot go beyond the adjacent parties, because such "leaping" would indicate ideological unreliability and would cause its rejection by the electorate. 18 This is equivalent to assuming elastic demand along the scale, as Smithies did in his elaboration of the Hotelling model (see Arthur Smithies, "Optimum Location in Spatial Competition," Joumnl of Political Economy, X L I X [1941], 423-39). 1 I O M I ' H E R 0 P O I 1 1I ' I I 1 0 . 143 are ciistriljuted along the scale as sho~+,n outside ones converged on the iniddle in Figurc 1 , then Hotclling is right. As- one, which then leaped to the outside to suming that Party A starts a t position 25 avoid strangulation. Since this process and Party B a t 75, both move toward 50, repeated itself endlessly, no stable equisince each can gain more votes in the librium emerged. But, in my model, such center than it loses a t the extremes be- leaping is impossible, because each party cause of abstention. But, if the distribu- has to maintain continuity in its ideolotion is like that shown in Figure 2, the two parties diverge toward the extremes rather than converge on the tenter. Each gains more votes by moving toward a radical position than it loses in the center. This reasoning implies that stable government in a two-party democracy requires a distribution of voters roughly approximating a normal curve. IYhen such a distribution exists, the two parties come to resemble each other closely. Thus, when one replaces the other in office, no drastic policy changes occur, and most voters are located relatively close to the incumbent's position no matter which party is in power. But when the electorate is polarized, as in Figure 2, a change in parties causes a radical alteration in policy. And, regardless of which party is in oflice, half the electorate always feels that the other half is imposing policies upon it that are strongly repugnant to it. I n this situation, if one party keeps getting re-elected, the disgruntled supporters of the other party will probably revolt; whereas ~f the two parties alternate in office, social chaos occurs, because government policy keeps changing from gy. Hence this model can be applied to one extreme to the other. Thus democra- multiparty systems without resulting in cy does not lead to effective, stable gov- disequilibrium. Multiparty systems are most likely t o ernment when the electorate is polarized. Either the distribution must change or exist when the distribution of voters is democracy will be replaced by tyranny in multimodal, as shown in Figure 3. A sepwhich one extreme imposes its will upon arate party forms a t each mode, and each party is motivated to stay a t its the other. Hotelling's original model was limited mode and to differentiate itself as comto the two-firm (or two-party) case, be- pletely as possible from its neighbors. IE cause, when three firms existed, the two it moves to the left so as to gain votes, it loses just as many votes to the party on its right (or loses them because of a1)stention if it is an extremist party at the right end of the scale), and vice versa. Thus its optimal course is to stay where it is and keep other parties from approaching it. I n a multiparty system, therefore, we find conditions exactly opposite to those in a viable two-party system. I17hereas in the former each party links itself to a definite ideological position and stresses its differences from other parties, in the latter both parties move toward the political center so as to resemble each other as closely as possible. This conclusion implies that voters in multiparty systems have a wider range of choice than voters in two-party systems and that each choice in this range is more definitely linked to some ideological position. Thus it appears that the electorate exercises a more significant function in a multiparty system than in a two-party system, because only in the former does it make much difference which party gets elected. However, appearances are deceiving in politics, because in fact the government in a multiparty system is likely to have a less definite, less coherent, and less integrated program than the government in a two-party system. This paradoxical outcome arises from the necessity in most multiparty systems of forming coalition governments. Since voters are scattered among several modes, only rarely does one party obtain the support of a majorit y of those voting. Yet, in most democracies, the government cannot function ~vithoutat least the indirect support of a majority of voters. Even in systems in which the legislature selects the government, a majority of its members must support the coalition chosen to govern before the coalition can take office. If we assume that representation in the legis- lature is "fairH--that each member represents the same number of citizens-then even a coalition government must receive the indirect support of a majority in order to govern. Such support can be maintained only if the government implements at least some policies that appeal to-are ideo logically near-each cluster of voters whose support it needs. If a majority of voters are massed in one relatively narrow band on the left-right scale, then the government can choose all its policies from within this band. Hence its policies will form a fairly cohesive set embodying the ideological viewpoint associated with that area of the scale. This outcome is typical of a two-party system. But in a m~lltipartysystem there are many modes scattered across the whole scale. Therefore, in order to appeal to a majority of voters, the government must be a coalition of parties and must include in its policy-set some policies espoused by each party in the coalition. I n this manner it "pays off" voters a t each cluster in return for their support. However, the result is that its program contains policies reflecting a wide variety of ideological viewpoints, so that no real cohesion or integration about any one II7eltanschauLing is possible. This outcome necessarily occurs whenever the distribution of voters along the scale is so scattered that only a very wide band can encompass a majority. Consequently, a multiparty system offers voters an ostensible choice between definite, well-integrated policy-sets in each election, but only rarely does one of these sets actually govern. Usually a coalition governs, and its policies are likely to be less definite and less well integrated than those of the government in a two-party system. This is true even though voters in the latter are offered only two relatively unintegrated alter- AN ECONOMIC THEORY OF POLITICAL ACTIOK IN '2 DEMOCRACY natives which closely resemble each other. No wonder politics often seems confusing. IYhether a political system has two or more parties depends on the distribution of voters along the scale and on the electoral rules governing the system. To demonstrate this dual dependence, I use the concept of "political equilibrium." A state of political equilibrium exists when no new parties can successfully be formed and when no existing party is motivated to move away from its present position. The limit to the number of new parties that can be formed successfully springs from my definition of success as ability to gain the income, power, and prestige that go with office; that is, as ability to get elected. If the constitution calls for the election of a legislature by proportional representation and the subsequent formation of a government by the legislature, then many parties can be formed, because any given party can get a t least some of its members elected by winning the support of only a small proportion of the citizens. Once elected, these members have a chance to share in the fruits of ofice by joining a coalition government. Hence it follows from my hypothesis about party motivation that many parties are likely to exist in a proportional representation system. Their number is limited only by the number of seats in the legislature and by the necessity of formulating ideologies sufficiently different from those of existing parties to attract votes away from them.'Wew parties continue to form until the distribution of voters is "saturated" -until there is not enough ideological "room" between existing parties to support others significantly different from them. Tn an electoral system in which a lY l'he number of sufticiently different parties as system can support depends upon the shape of the distribution of voters along the scale. 145 plurality is necessary for victory, the limit on successful party formation is much more stringent. Since the only way to insure a plurality against all opponents is to win a majority of votes, small parties tend to combine until two giants are left, each of which has a reasonable chance of capturing a majority in any given election. I17here these two parties are located on the ideological scale depends upon the distribution of voters, as explained before. Actually, the policy position and stability of the government in a democracy are relatively independent of the number of parties; they follow primarily from the nature of the distribution of voters along the left-right scale.*OIf a majority of voters are massed within a narrow range of that scale, democratic government is likely to be stable and effective, no matter how many parties exist. As noted earlier, the government can formulate a policy-set which appeals to a majority of voters and yet does not contain policies embodying widely disparate points of view. But, if the government can win the support of a majority only by adopting a scattering of policies chosen from a broad range of viewpoints, these policies tend to cancel each other out, and the government's net ability to solve social problems is low. Thus the distribution of voters-which is itself a variable in the long run-determines whether or not democracy leads to effective government. IYhen information is costly, no decision-maker can afford to know everything that might possibly bear on his decision before he makes it. He must select 20 However, because the preferences of rising generations are influenced by the alternatives offered them, the number of parties is one of the factors that determine the shape of the distribution of voters. only a few data from the vast supply in existence and base his decision solely upon them. This is true even if he can procure data without paying for them, since merely assimilating them requires time and is therefore costly. The anlount of information it is rational for a decision-maker to acquire is determined by the following economic axiom: I t is always rational to perform any act if its marginal return is larger than its marginal cost. The marginal cost of a "hit" of information is the return foregone by devoting scarce resourcesparticularly time-to getting and using it. The marginal return from a "bit" is the increase in utility income received because the information enabled the decision-maker to improve his decision. I n an imperfectly informed world, neither the precise cost nor the precise return is usually known in advance; but decisionmakers can nevertheless employ the rule just stated by looking a t expected costs and expected returns. This reasoning is as applicable to politics as it is to economics. Insofar as the average citizen is concerned, there are two political decisions that require information. The first is deciding which party to vote for; the second is deciding on what policies to exercise direct influence on government policy formation (that is, how to lobby). Let us examine the voting decision first. BeEore we do so, it is necessary to recognize that in every society a stream of "free" information is continuously disseminated to all citizens. Though such "free" data take time to assimilate, this time is not directly chargeable to any particular type of decision-making, since it is a necessary cost of living in society. For example, conversation with business associates, small talk with friends, reading the newspaper in a barber shop, and listening to the radio while driving to work are all sources of information which the average man encounters without any particular effort to do so. Therefore, we may consider them part of the "free" information stream and exclude them fro111 the problem of how much information a decision-maker should obtain specifically to improve his decisions. The marginal return on information acquired for voting purposes is measured by the expected gain from voting "correctly" instead of "incorrectly." I n other words, it is the gain in utility a voter helieves he will receive if he supports the party which would really provide him with the highest utility income instead of supporting some other party. However, unless his vote actually decides the election, it does not cause the "right" party to be elected instead of a "wrong" party; whether or not the "right" party wins does not depend on how he votes. Therefore, voting "correctly" produces no gain in utility whatsoever; he might as well have voted "incorrectly." This situation results from the insignificance of any one voter in a large electorate. Since the cost of voting is very low, hundreds, thousands, or even millions of citizens can afford to vote. Therefore, the probability that any one citizen's vote will be decisive is very small indeed. I t is not zero, and it can even be significant if he thinks the election will be very close; but, under most circumstances, it is so negligible that i t renders the return from voting "correctly" infinitesimal. This is true no matter how tremendous a loss in utility income the voter would experience if the "wrong" party were elected. 4 n d if that loss is itself small-as it may be when parties resemble each other closely or in local elections-then the incentive to become well informed is practically nonexistent. 7'hercforc, we reach the startling conclusion that it is irrational for most citizens to acquire political information for purposes of voting. ,As long as each person considers the behavior of others as given, it is simply not worthwhile for him to accjuire information so as to vote "correctly" himself. The probability that his vote will determine which party governs is so low that even a trivial cost of procuring inforination outweighs its return. Hence ignorance of politics is not a result of unpatriotic apathy; rather it is a highly rational response to the facts of political life in a large democracy. This conclusion does not mean that every citizen who is well informed about politics is irrational. ,4 rational man can I~ecomewell informed for four reasons: (1) he may enjoy being well informed for its own sake, so that information as such provides him with utility; (2) he may believe the election is going to be so close that the probability of his casting the decisive vote is relatively high; (3) he may need inforination to influence the votes of others so that he can alter the outcome of the election or persuade government to assign his preferences more weight than those of others; or (4) he may need information to influence the formation of government policy as a lobbyist. Neverthe less, since the odds are that no election will be close enough to render decisive the vote of any one person, or the votes of all those he can persuade to agree with him, the rational course of i~ction for most citizens is to remain politically uninformed. Insofar as voting is concerned, any attempt to acquire information beyond that furnished by the stream of "free" data is for them a sheer waste of resources. The disparity between this conclusion and the traditional conception of good citizenship in a democracy is indeed striking. IIow can we explain it? The answer is that the benefits which a majority of citizens would derive from living in a society with a well-informed electorate are indivisible in nature. IYhen most members of the electorate know what policies best serve their interests, the government is forced to follow those policies in order to avoid defeat (assuming that there is a consensus among the informed). This explains why the proponents of democracy think citizens should be well informed. But the benefits of these policies accrue to each member of the majority they serve, regardless oi whether he has helped bring them about. I n other words, the individual receives these benefits whether or not he is well informed, so long as most people are well informed and his interests are similar to those of the majority. On the other hand, when no one else is well iniormed, he cannot produce these benefits by becoming well informed himself, since a collective effort is necessary to achieve them. Thus, when benefits are indivisible, each individual is always motivated to evade his share of the cost of producing them. If he assumes that the behavior of others is given, whether or not he receives any benefits does not depend on his own efforts. But the cost he pays does depend on his efforts; hence the most rational course for him is to minimize that cost-in this case, to remain politically ignorant. Since every individual reasons in the same way, no one bears any costs, and no benefits are produced. The usual way of escaping this dilemma is f o ~all individuals to agree to be coerced by a central agency. Then each is forced to pay his share of the costs, but he knows all others are likewise forced to pay. Thus everyone is better off than he would be if no costs were borne, because everyone receives benefits which (I here nssume) inore than oflset his sll:tre of the costs This is a hasic rationale for using coercion to collect revenues for national deiense and for many other government operations that yield indivisible l~enefits.~' But this solution is not feasible in the case of political information. The government cannot coerce everyone to be well informed, because "well-iniormedness" is hard to measure, because there is no agreed-upon rule for deciding how much information 01 what kinds each citizen "should" have, and because the resulting interference in personal affairs would cause a loss of ucility that would proba1,1y outweigh the gains to be had from a well-informed electorate. 'L'he most any democratic government has done to remedy this situatjon is to co~npelyoung people in schools to take courses in civics, government, and history. Consequently, it is rational for every individual to minimize his investment in political information, in spite of the fact that most citizens might benefit substantially if the whole electorate were well informed. -4s a result, democratic political systems are bound to operate a t less than maximum efficiency. Government does not serve the interests of the majorit y as well as it would if they were well informed, but they never become well informed. I t is collectively rational, but individually irrational, for them to do so; and, in the absence of any mechanism to insure collective action, individual rationality pre-<ails. Ii'hen we apply the economic concept of rationality to the second political use of information, lobbying, the results are 21 See Paul A. Sainuelson, "The Pure Theory of I'ublic Expenditures," Reaie;~'oj Economics nnd Statistics, XXX\-I (November, 1954), 387-89. similarly incompatible with the tratlitional view of deinocrac~r.In order to be an effective lobbyist, a citizen must persuade the governing party that the policies he wants either are already desired by a large number of other citizens or are sufticiently beneficial to the rest of the electorate so that i t will, a t worst, not resent the enactment of these policies. To be persuasive, the would-be lobbyist must be extremely well informed about each policy area in which he wishes to exert influence. He must be able to design a policy that benefits him more than any other would, to counter any arguments advanced by opposing lobbyists, and to formulate or recognize coinpromises acceptable to him. Therefore, being a lobbyist requires much inore information than voting, since even well-informed voters need only coinpare alternatives formulated by others. For this reason, the cost of acquiring enough information to lobby effectively is relatively high. A lobbyist must be an expert in the policy areas in which he tries to exert influence. Since few men can afford the time or money necessary to become expert in more than one or two policy areas (or to hire those already expert), most citizens must specialize in a very few areas. Such behavior is rational even though policies in many areas affect them to some extent. Conversely, only a few specialists will actively exert pressure on the government in any one policy area. =\s a result, each need not heavily discount his own impact because of the large number of other persolls influencing the decision, as he does in regard to voting. On the contrary, for those few lobbyists who specialize in any given area, the potential return from political information may be very high -precisely because they are so few. The men who can best afford to be- AN ECOlUOllIIC T H E O R Y OF P O L I T I C A L A C T I O N IN X DEMOCRAC'T come lobbyists in any policy area are those whose incomes stem From that area. This is true because nearly every citizen derives all his income from one or two sources; hence any government policy affecting those sources is of vital interest to him. I n contrast, each man spends his income in a great many P o l i c ~areas, So that a change in any One of them is not too significant to him. Therefore, men are much more likely to exert direct influence On government Policy formation in their roles as producers than in their roles as consumers. In consequence, a democratic government is usually biased in favor Of producer interests and against consumer interests, even though the conWmers any given Product Outnumber its producers. Tariff legislation provides a notorious example of this bias. I t should be stressed that such systematic Of consumers producers acting through government policy is not a result of foolish apathy on the part of consumers. I n fact, just the opposite is true. Government's anticonsumer bias occurs because consumers rationally seek to acquire only that information \\?hich provides a return larger than its cost. The saving a consumer make by becoming informed about how government policy affects any one Product he Purchases does not recompense him for the cost of informing llimself--particularly since his personal influence O n government policy probably be slight. Since this is true of almost every produc- he buys, he adopts course of knorance, thereby exposing himself to extensive expl0iti-ition. y e t it would be irrational for him to act otherwise, In other words, ing is effective in a democracy becnzrse all the agent5 concerned-the the exploited, and the rationally. 149 IX clearly, rational behavior in a democracy is not what most normative theorists assume it to be. political theorists in particular have often created models of how the citizens of a democracy ought to behave without taking into account the economics of political action. Consequently, much of the evidence frequently cited to prove that democratic politics dominated by irrational (non-logical) forces in fact demonstrates that citizens respond rationally (eficiently) to the exigencies of li[e in an imperfectly inamong citizens formed toward elections, ignorance of the issues, the tendency of parties in a two-party system t o resemble each otller, and the anticonsumer bias of government action can all be logically as reactions to imperfect information in a large democracy. .Iny normative theory that regards them as signs of unintelligent behavior in politics has failed to face the fact that information is costly in the real world. Thus political theory has because it has not taken into account certain economic realities. On the Other hand, economic has suffered because it has not taken into account the political realities of govern22 In this sentence the word "irrational" is not the opposite of the word "rational," as the synonyms in parentheses show. Adn~ittedly,such dual usage may cause confusion. However, I have elnployed the ,rord instead of its synonym 'tefi. cient" throughout this article because 1 want to emphasize the fact that an intelligent citizen always carries out any act whose marginal return exceeds its marginal cost. I n contrast, he does not always make use of logical thinking, because, under some conditions, the marginal return from thinking logically is smaller than its marginal cost. In other words, it is son~etimesrational (efficient) to act irrationally (non-logically), in nhich case an intelligent man eschews rationality in the traditional sense so as to achieve it in the economic sense. This is really n h a t is meant by the sentence in the text to which this footnote is attached. ment decision-making. Economists have been content to discuss government action as though governments were run by perfect altruists whose only motive was to maximize social welfare. As a result, economists have been unable to incorporate government into the rest of economic theory, which is based on the premise that all men act primarily out of self-interest. Furthermore, they have falsely concluded that government decisionmaking in all societies should Follow identical principles, because its goal is always the maximi~ationol social welfare. If my hypothesis is true, the goal of government is attaining the income, power, and prestige that go with office. Since methods of reaching this goal are vastly different in democratic, totalitarian, and aristocratic states. no single theory can be advanced to explain government decision-making in all societies. Nor can any theory of government decision-making be divorced from politics. The way every government actually makes decisions depends upon the nature of the fundamental power relation between the governors and the governed in its society; that is. upon the society's political constitution. 'Therefore, a different theory of political action must be formulated for each different type of constitution. I conclude that a truly useful theory of government action in a democracy-or in any other type of society-must be both economic and political in nature. I n this article I have attempted to outline such a theory. If nothing else, the attempt demonstrates how much economists and political scientists must depend on each other to analyze government decision-making, which is the most important economic and political force in the world today. http://www.jstor.org LINKED CITATIONS - Page 1 of 1 - You have printed the following article: An Economic Theory of Political Action in a Democracy Anthony Downs The Journal of Political Economy, Vol. 65, No. 2. (Apr., 1957), pp. 135-150. Stable URL: http://links.jstor.org/sici?sici=0022-3808%28195704%2965%3A2%3C135%3AAETOPA%3E2.0.CO%3B2-F This article references the following linked citations. If you are trying to access articles from an off-campus location, you may be required to first logon via your library web site to access JSTOR. Please visit your library's website or contact a librarian to learn about options for remote access to JSTOR. [Footnotes] 15 Stability in Competition Harold Hotelling The Economic Journal, Vol. 39, No. 153. (Mar., 1929), pp. 41-57. Stable URL: http://links.jstor.org/sici?sici=0013-0133%28192903%2939%3A153%3C41%3ASIC%3E2.0.CO%3B2-F 18 Optimum Location in Spatial Competition A. Smithies The Journal of Political Economy, Vol. 49, No. 3. (Jun., 1941), pp. 423-439. Stable URL: http://links.jstor.org/sici?sici=0022-3808%28194106%2949%3A3%3C423%3AOLISC%3E2.0.CO%3B2-V 21 The Pure Theory of Public Expenditure Paul A. Samuelson The Review of Economics and Statistics, Vol. 36, No. 4. (Nov., 1954), pp. 387-389. Stable URL: http://links.jstor.org/sici?sici=0034-6535%28195411%2936%3A4%3C387%3ATPTOPE%3E2.0.CO%3B2-A NOTE: The reference numbering from the original has been maintained in this citation list.