Strategic Vote Trading in Power Sharing Systems

Abstract

This paper studies decentralized vote trading in a power sharing system that follows the rules of strategic market games. In particular, we study a two-party election in which prior to the voting stage, voters are free to trade votes for money. Voters hold private information about both their ordinal and cardinal preferences, whereas their utilities are proportionally increasing in the vote share of their favorite party. In this framework, we prove generic existence of a unique full trade equilibrium (an equilibrium in which nobody refrains from vote trading). Moreover, we argue that vote trading in such systems unambiguously improves voters' welfare. (JEL C72, D71, D72, D82)

Strategic vote trading under complete information

“…4 decreasing when compared to plurality rule without vote trading, in the sense that it implements less frequently the alternative that maximizes the sum of individual cardinal utilities. On the other hand, Xefteris and Ziros (2017), in an incomplete information variant of the current framework, proved that vote trading is welfare improving because when vote trading is allowed all players'expected utility is larger compared to the case where vote trading is prohibited. The welfare analysis of vote trading under complete information is orthogonal to all these results, since in certain cases, vote trading leads to a larger social utility compared to simple voting, and in some others not.…”

“…Indeed, as Piketty (1994) argues, there can be no price-taking equilibrium with active vote trading under complete information, as incentives for trading are hard to be aligned when individual (and, thus, most probably con ‡icting) preferences are publicly known. For this reason, most works in the literature feature incomplete information and, in speci…c, consider either that there is uncertainty about both the ordinal and cardinal preferences of other voters (e.g., Casella et al, 2012;Xefteris and Ziros, 2017), or that ordinal preferences are publicly known but the intensities of these preferences are private information (e.g., .…”

Does Vote Trading Improve Welfare ?

“…Under either complete (Xefteris & Ziros, 2018) or incomplete (Xefteris & Ziros, 2017) information about preferences, an equilibrium exists where all voters are trading -on each side, voters with lower valuations sell their votes while voters with higher valuation buy votes. The welfare properties of this full-trade equilibrium depend on the informational environment.…”

“…Xefteris & Ziros (2017) consider instead a model of incomplete information, where preferences (z i ) are drawn independently from the same distribution.37 In stark contrast toCasella et al (2012), they obtain a strong and positive welfare result:Result (Efficiency of trade in a power-sharing system). Under any symmetric equilibrium of the strategic market game with power sharing, all voters are weakly better off than under no trade.The finding reflects both the linearity of the outcome function and the symmetry of the model: from the point of view of any voter, not trading is always an available option and delivers in expectation the same utility as when trade is forbidden, because any favorable trade is as likely as any equivalent unfavorable trade.…”

Vote Trading in Power-Sharing Systems: A Laboratory Investigation

“…Xefteris and Ziros (2017) derived some first results by studying a specific trading mechanism in such systems. To our knowledge, though, there is still no general argument that applies across different trading institutions and generates clear predictions regarding the effects of vote trading on collective welfare 4.…”