An Economic Theory of Democracy

In his book, “An Economic Theory of Democracy”, professor Anthony Downs tried to formulate voting theory based on rationality, by quoting Milton Friedman for potential criticism to his propositions: “Theoretical models should be tested primarily by the accuracy of their predictions rather than by the reality of their assumptions.”

In Down’s argument, rationality means maximizing one’s own utility (as it does in economics), and in this specific case, it means that a political party tries to maximize their votes. The underlying hypothesis is that (1) a political party seeks to control the governing apparatus by gaining office in a duly constituted election, and (2) for political parties to gain the office per se is beneficial to parties, i.e. they don’t formulate policy to achieve their political purpose; they formulate it to gain votes. The hypothesis is called “the party-motivation hypothesis”.

Prof. Downs also assumed rationality of voters (the citizen-rationality hypothesis). If that is the case, every citizen rationally attempts to maximize his utility.

By assuming rationality, author suggested many propositions. Let me introduce some of them.

1. A political party behaves such that marginal cost equals to marginal vote gain. In many cases, the best strategy seems to follow the majority, but just conforming to the will of majority does not guarantee reelection, because the oppositions form coalition and win by upholding the minority view on key issues (it would be especially the case, when there are many political issues.

2. Democratic governments tend to redistribute income from the rich to the poor, because the poor are majority. They also tend to favor producers more than consumers in their actions, because voters are more likely to exert political influence in their roles as income-receivers than in their roles as income-spenders. In other words, voters care more about their future income, not their way of consumption.

3. Voters are rational and gather information to maximize utility from their voting activities. Under certainty, in which voters can surely predict what political parties would do, gathering information makes sense. But under uncertainty, to gather information to be well-informed is costly and makes no sense in many cases, voters do not bother to discover their true views before voting but use heuristics such as knowing party’s ideology to cut their information costs. Predicting that voters use ideology as a label of parties’ political position, political parties use ideology to manifest their position to gain votes. Thus, the author argues that true political equality is impossible even in democracies if (1) uncertainty exists, (2) there is a division of labor, and (3) voters act rationally.

4. In a two-party system, both parties try to avoid losing majority position in every issue, whereas under a multiparty system, a party could be successful by making the best position-mix, e.g. taking majority position in specific issues but not doing so in some issues. Thus, party policies in a two-party system are (a) more vague, (b) more similar to those of other parties, and (c) less directly linked to an ideology than in a multiparty system. The proposition is called “convergence theorem”.

5. A large percentage of citizens – including voters – do not become informed to any significant degree on the issues involved in elections, even if they believe the outcomes to be important. In some cases they abstain. Voters do so because the cost to be informed exceeds the benefit of voting composed of (1) the benefits a voter gets from democracy, (2) how much he wants a particular party to win, (3) how close a voter thinks the election will be, and (4) how many other citizens he thinks will vote.

Remarks

To me, it was remarkable that just applying economic theory into political analysis gained many citations. This fact tells me the importance to be the first mover, and in many cases to be the first is to connect different things. Even now, there could be many topics waiting to be connected with different things.

Many of the hypotheses and propositions here make sense to me: the ignorance of voters despite the importance of issues in some elections, parties acting just to be elected, etc. Even though many scholars criticized the incompleteness and flaws of Down’s arguments, his contribution for opening up new way of political analysis should be highly evaluated. The analysis could be applied to study other sorts of collective actions.

Reference

“An Economic Theory of Democracy”, Anthony Downs, Addison Wesley, (1997/1/21)