On the efficiency of vote buying when voters have common interests

Abstract

We examine the conditions under which vote buying may promote efficiency in an environment where voters have identical preferences with respect to the behavior of their elected representatives (who are subject to both moral hazard and adverse selection). Our results suggest that permission of vote buying may prove beneficial in the market for corporate control and in some types of local political elections.Jel Classification numbers: D72, G32, G34, K22.

The Price of Democracy: Vote Buying and Village Elections in China

“…This shift is a positive institutional development and reflects an advance in the village election process. The argument is similar to that of several American scholars, who suggest that the shift from office to vote buying means the voter's choice is important and the candidate must distribute his or her bid among voters (Neeman & Orosel, 2006).…”

“…Language is the first factor that distinguishes broad definitions from the English and Chinese accounts. In the English literature, Neeman and Orosel (2006), Stokes (2005), and Schaffer (2008) provide a market interpretation of vote buying. Thus, “vote buying, in the literal sense, is a simple economic exchange.…”

Vote Trading and Information Aggregation

“…On the positive side, vote trading can restore efficiency when capital gains taxes discourage share trading (Blair, Golbe, and Gerard (1989)). Vote trading may also alleviate the free‐rider problem of Grossman and Hart (1980), reducing firms' dependence on large shareholders for monitoring (Shleifer and Vishny (1986) and Maug (1998)) by allowing better management teams to buy control without paying their value‐added by buying shares (Neeman and Orosel (2006)).…”

Does trading votes in national elections change election outcomes?

“…Blair et al (1989), Harris and Raviv (1988), and Grossman and Hart (1980) present models to analyze the effects of vote trading in corporate elections and to design optimal corporate governance rules. Furthermore, Neeman and Orosel (2006) consider in their model the problem of looting the corporation by the management. The insights of these models for our problem are restricted because, often in these models the incumbent of a certain valuable position, like a CEO, plays the role of the vote buyer and the voters have common interests.…”

“…4 On the other hand supporters of the ban regularly bring forward three types of arguments (Hasen 2000;Neeman and Orosel 2006;Kochin and Kochin 1998): 1. the inalienability argument (Hasen 2000(Hasen : 1325(Hasen , 1331(Hasen -1335Levmore 2000: 113-122):…”