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The Political Market for Lemons

Asymmetric information exists in all sorts of markets and occurs where buyers have less information about products than the seller of that product does. In Liudmyla Vozna’s article the Political Market with Asymmetric Information and Hybrid Democracy, he applies this phenomenon to our country’s current political climate. In a political market model, politicians are both sellers and products and the electorate represents the buyer. People “purchase” politicians by voting in elections, and ideally, the facts consumed about these candidates would be unbiased and the process would be entirely fair and operate legally. However, this is not the case: safeguards which work to rid the political process of information asymmetry are in fact increasing it.  Media sources are becoming more and more partisan, politicians are swayed by lobbyists and interest groups, and distrust in government is at an all time high.

The problem is that candidates both work to represent themselves in the most favorable way possible and appeal to certain groups, all while under the influence of partisan goals and lobbyists. Voters have no way to distinguish fact from fiction, in the same way a buyer in a used car market can’t easily distinguish the good cars from the bad. In the used car market, the theory holds that the “worst floats to the top”, as good cars are pushed out of the market since buyers are only willing to pay a certain, lower price due to their lack of information about a car’s quality. This theory can be viewed through a political lens to explain how information asymmetry can lead to the deterioration of democratic institutions: “without good information, the contestability of the political processes can be undermined”.

It’s interesting to reflect on just how powerful the wisdom of crowds can be, and how far-reaching that impact can go. Political races are prone to information cascades, signaling, and free-riders — effects which can be costly. Although the political market may function similarly to other markets, the impact that these phenomena have are arguably more important than in other spheres. Take, for example, fake news: false information distorts voter knowledge, can create cascades and mistrust while wholly shaping the route an election takes.

https://www.researchgate.net/publication/328293918_The_Political_Market_with_Asymmetric_Information_and_Hybrid_Democracy

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