April 28, 2011
The Missing Market for Good Honest Politics (Part 3 of 3)
Like used car salesmen, politicians must sell themselves as much as their policies.
The first two columns in this series looked to the work of political economists Anthony Downs, Bryan Caplan and Mancur Olson to explain why elections, for all their essential goodness, seem to frustrate our expectations of just and intelligent public decision making. This third and final column looks to simple economics to suggest why politicians are sometimes compared with used car salesmen and why they tend to make such frivolous gestures as piano performances and selling novelty eyebrows on the campaign trail.
The first column in this series drew on the work of political economists Anthony Downs and Bryan Caplan to argue that voters are rational to not vote because the cost (time and effort) of becoming informed about voting is greater than the difference their individual vote will make to an election outcome. It came to the logical, if depressing, conclusion that voters find themselves paralysed as a group. Everybody wishes that everybody else would make the effort to become informed, but nobody has an incentive to do so.
Here, we consider the rational response of politicians to such a situation by using the economic theory of asymmetrical information. Asymmetrical information occurs when people on one side of a transaction have less information than the other side about the product on offer.
The classic case of asymmetrical information taught to first year economics students is used-car sales, and it goes something like this. There are several used cars on offer, and to the buyer they look the same. However, the car salesman knows that some have hidden faults and others do not. The good ones are worth $10,000, and the bad ones are worth only $5,000. Not knowing which is which, the buyer is prepared to pay only $7,500 for any car, knowing that over a lifetime of car purchases, their good and bad deals will balance out.
The problem is that car salesmen who really do have cars worth $10,000 find it very hard to convince buyers to pay their true value. In other words, there is a missing market for good cars. This no-man’s land of missing consumer information is where used-car salesmen have to operate, trying to convince buyers that unlike all the others, they are the good guys. That simple dynamic probably explains why car salesmen are sometimes maligned for being sleazy and opportunistic.
But what of electoral candidates? The fundamental problem with the used-car scenario is that the consumer does not have enough information to make a proper decision about what he or she is buying. Because voters as a group lack the incentive to become fully informed about voting choices, they fit the profile of used-car buyers who do not know exactly what is really on offer. Electoral candidates, because they tend to be passionately involved in politics and face sizeable rewards for being elected, tend to know more about what they are offering than their buyers do.
If you accept the analogy, then there must be a missing market for good, honest campaigning on public policies. Candidates have little opportunity to develop good policies or sell them to the public just as used-car salesmen have little opportunity to sell the good cars. Like the rational car buyer, the rational voter decides that the good ones just do not exist.
In the world of used cars, salesmen attempt to solve the problem of signalling that they are trustworthy by investing in flashy showrooms, advertising, branding and personality. By doing so, they are sometimes able to convince buyers that, unlike all the others, they can be trusted and their cars really are the good ones. If they are successful, they get the full price for good cars. However, it is a murky process at the best of times because salesmen with bad cars can also send these signals.
To extend the analogy one more time, actions such as the Conservative leader playing John Lennon’s Imagine on the piano while sitting beside a little girl (see, he’s got a human side) and the Liberal leader selling stick-on eyebrows, which are supposed to resemble his own, (see, he can laugh at himself) are just examples of signalling in a market where the buyer cannot or will not scrutinize the actual product on offer. Actions such as these might seem far removed from the business of running better government, but they are the perfectly logical reaction to the dynamics of the elections we have.
direct the Centre’s Saskatchewan office from 2007 to 2011. He holds degrees in Electrical Engineering and Philosophy from the University of Auckland, where he also tutored Economics. In four years working for the Frontier Centre, David carried out extensive media work, presenting policy analysis through local and national television, newspapers, and radio. His policy columns have been published in newspapers in every province as well as the Globe and Mail and the National Post. David has produced policy research papers on telecommunications privatization, education, environmental policy, fiscal policy, poverty, and taxi deregulation. However, his major project with the Frontier Centre is the annual Local Government Performance Index (LGPI). The inaugural LGPI was released in November 2007 and comes at a time when municipal accounting standards in Canada must improve if the municipal government sector is to reach its potential as an economic growth engine for Canada. David is now a policy advisor in Wellington, New Zealand.