The Market for Politicians: A Lemons Problem
With the Republican presidential primaries heating up for the 2012 election year, you have a slew of candidates with varied backgrounds and differing levels of qualifications. Every candidate is spieling their own rhetoric, and it’s up to the republican voters to select the best candidate, much like any election. However the problem that arises is much like that proposed by Nobel Prize winner, George Akerlof, the lemons problem. The asymmetric information that creates barrier of transaction between buyers and sellers in the used car market also has profound effects on the political “market”. Of course the model for looking at asymmetric information seen in certain markets does not translate completely to the political market, but there are parallels to be drawn.
The politicians try to sell their attributes and qualities. In doing so, they represent themselves as champions for certain causes. However what they will give may be different from what they say they will give. The voters are the buyers. They give payment in the form of a vote, or any political involvement whether it is rhetorical or financial support. Now comes the problem of which politician is the optimal buy. There is asymmetric information in what the voters believe a politician is and what the politician actually has a vested interest in. This is much like the used car market; all cars try to represent themselves as high quality, which creates the problem of buyers receiving a negative expected return. So in turn no buyers buy and there is a breakdown in the market.
The political market presents a slightly different dilemma. It doesn’t match one buyer to one seller, but rather one seller to the majority of buyers. So defining what constitutes a low quality politician is hard. Not only is it hard to define, but buyers have differing opinions of quality. Since we elect under a democratic system, one can assume that a high quality politician is one who holds approval with a majority of his/her constituents and a “lemon” is one that that despite being elected by a majority has a less then majority approval later in his/her term. If the politician has approval from his/her constituents then the constituents experience positive utility and the buy was good.
Unlike the typical lemon market, both high quality and low quality sellers stay in the market and there is no complete breakdown of the market. We can think the reason for this is that there’s no average price between the low and high quality candidates but rather a fixed price higher then both seller’s willingness to sale. Buyers have to buy at a fixed minimum price (electing an official) higher than the average cost of the sellers. A political position you can is somewhat invaluable, so all sellers stay in the market. So for simplicity, less say initial there is equal probability to elect either a high or low quality politician. Since this is the case we want to try to minimize the possible of selecting a lemon. To do so voters have to maximize the information they know about each seller. However to do so is costly, there is time consumed in learning about each politician. So in some instances buyers are unwilling to spend any additional “cost” because they still receive the product regardless and spending additional cost in lowering the probability of a lemon is not worth it to them.
Since this is the case, instead of having lemons only in the market like the used car market presented by Akerlof, there is increased probability of selecting a lemon in the political market. The reasoning for this is that moderates or the middle majority of voters don’t have a strong enough preference on issues to spend additional costs to research the candidates. This leaves strong advocacy groups on far ends of the spectrum have unified and concise goals to spend additional cost additional in advocating for a “lemon”. Again lemon would be someone who doesn’t share the views of the majority of his/her constituents. Since far ends represent deviations from the “norm” a candidate who holds such views, may not be the best option for the majority. The Tea Party can be considered one such group.
Of course, solving such a problem may not be as simple as the one presented in a used car market. There are numerous other factors involved in the “political market”. You have signaling and information cascades from political parties, free-rider problem, principal-agent problem, etc. Acquiring and verifying information is costly, but that seems to be the only solution. With how easier the transition of information has become, the ability to minimize such problem has at least decreased.
The idea from my post came from here:
http://blogs.standard.net/economics-etc/2011/01/13/%E2%80%98lemons%E2%80%99-problem-in-a-democracy/