Experimentation in Democratic Mechanisms

CER-ETH – Center of Economic Research Working Paper 14/199

44 Pages Posted: 15 Jul 2014

See all articles by Volker Britz

Volker Britz

Maastricht University - Department of Economics

Hans Gersbach

ETH Zurich - CER-ETH -Center of Economic Reseaarch; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Date Written: July 14, 2014

Abstract

We examine whether and how democratic procedures can achieve socially desirable public good provision in the presence of deep uncertainty about the benefits of the public good, i.e., when citizens are able to identify the distribution of benefits only if they aggregate their private information. Some members of the society, however, are harmed by socially desirable policies and try to manipulate information aggregation by misrepresenting their private information. We show that information can be aggregated and the socially desirable policy implemented under a new class of democratic mechanisms involving an experimentation group. Those mechanisms reflect the principles of liberal democracy, are prior-free, and involve a differential tax treatment of experimentation group members which motivates them to reveal their private information truthfully. Conversely, we show that standard democratic mechanisms with an arbitrary number of voting rounds but no experimentation do not generally lead to the socially desirable policy. Finally, we demonstrate how experimentation can be designed in such a way that differential tax treatments occur only off the equilibrium path.

Keywords: Democratic Mechanisms, Experimentation, Public Goods, Voting, Information Aggregation

JEL Classification: D62, D72, H40

Suggested Citation

Britz, Volker and Gersbach, Hans, Experimentation in Democratic Mechanisms (July 14, 2014). CER-ETH – Center of Economic Research Working Paper 14/199. Available at SSRN: https://ssrn.com/abstract=2466010 or http://dx.doi.org/10.2139/ssrn.2466010

Volker Britz

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Hans Gersbach (Contact Author)

ETH Zurich - CER-ETH -Center of Economic Reseaarch ( email )

Zürichbergstrasse 18
Zurich, 8092
Switzerland
+41 44 632 82 80 (Phone)
+41 44 632 18 30 (Fax)

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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