Economic theory of democracy

Buchanan and Tullock (chapter 6), in the exposition of economic theory of democratic constitutions, argue that the individual expects zero external costs when collective decisions are made under an unanimity rule. This is because the individual, through his own action, can prevent collective outcomes adverse to his own interest. As conditions of unanimity rule are relaxed (majority rule, representative rule, etc.), the individual may expect external costs to increase. The rational individual will therefore willingly agree to relax inclusive voting requirements only if there is compensation by some means (decreased decision costs or other organizational costs) that is equal to or greater than the expected increase in external costs. This compensation must then be the value the individual places on any control over collective outcomes that he is able to exercise. Consider now a situation in which the members of a democratically-organized collectivity must approve or reject a reorganization plan which ~ offer the members various tax savings (or increases) by centralizing collective organization and decision-making, Array all the members of the collectivity in a cumulative distribution according to the net tax effects under the reorganization plan as illustrated in Figure 1. Assume for the moment that present individual control over collective outcomes has zero value. Then those members of the collectivity with a net tax decrease would be expected to approve the reorganization plan and those members of the collectivity with a net tax increase would be expected to reject the reorganization plan. 1 Point 0 on the abscissa in Figure 1 then delineates individual choice behavior. Point P on the ordinate corresponding to point 0 would give the expected division of the collectivity regarding approval or disapproval of the