Democracy, the Market, and the Logic
of Social Choice
Samuel DeCanio
Yale University
This article compares the types of knowledge democracy and the market require to rationally allocate resources. I argue that
high levels of public ignorance and voters’ inability to compare the effects of different parties’ policies make it difficult for
parties and elections to rationally allocate resources. Markets mitigate these problems because the simultaneous existence
of multiple firms’ products facilitates comparisons that mimic the conditions of scientific experimentation. The economy
of knowledge involved in such comparisons indicates there are epistemic advantages to using firms and markets, instead of
political parties and elections, to allocate scarce resources. However, in contrast to arguments that markets merely provide
better information than political decisions, I argue markets’ epistemic advantages are derived from the way they facilitate
comparisons that minimize decision makers’ need for knowledge or understanding.
Few men ever really understand their institutions.
—William Riker
T
he optimal method for allocating scarce resources
among competing ends constitutes one of the
most general questions occupying the social sciences. While different societies have used various political
and economic systems to allocate resources, modern societies rely on two institutions, democracy and the market,
and two organizations, private firms and political parties,
to produce and distribute goods (Anderson 2006; Arrow
1963; Hall 1997). The relative merits of these institutions
and organizations constitute enduring debates within the
social sciences.
Modern institutions and organizations have been
studied from a range of perspectives. Social choice
theorists have examined problems associated with
preference consistency, transitivity, and collective action
(Arrow 1963; Black 1958; Olson 1965; Riker 1982;
Shepsle 1989). Normative and epistemic democratic
theorists have examined how democracy aggregates
information and the nature of deliberation (Benhabib 1996; Cohen 1986; Dryzek 2001; Fishkin 1993;
Habermas 1998; Knight and Johnson 1994; Landemore
2012; Manin 1987; Ober 2013). Empirical public
opinion specialists have examined how voters process
information and use various heuristics when making
political decisions (Kahneman, Slovic, and Tversky 1982;
Kuklinski et al. 2000; Lupia 1994; Lupia and McCubbins
1998; Popkin 1994; Sniderman, Brody, and Tetlock 1991).
While many have studied how knowledge interacts
with democracy, voters are often ignorant of basic political information. Voters cannot name their representatives, describe public policies, or explain their effects
(Achen and Bartels 2004; Campbell et al. 1960; Caplan
2007; Converse 1964; Delli Carpini and Keeter 1996;
Kinder 1998; Somin 1998). Some suggest widespread
public ignorance is among the strongest findings of the
social sciences (Bartels 1996, 194; Friedman 1998, 397).
Although voter ignorance has been accepted as an
empirical finding, some argue voters can use information
shortcuts and heuristics, the position of social groups,
cues from trusted opinion leaders, values, and the miracle of aggregation to make decisions “as if ” they were
derived from larger amounts of information (Brady and
Sniderman 1985; Conover and Feldman 1989; Erikson,
Mackuen, and Stimson 2002; Page and Shapiro 1992).
Indeed, politics is hardly unique in this regard.
Most social relationships exhibit imperfect information
Samuel DeCanio is Assistant Professor of Political Science, Yale University, 77 Prospect St., New Haven, CT 06520 (samuel.decanio@
yale.edu).
Thanks to Peter Boettke, John Bullock, Dan Butler, Casiano Hacker-Cordon, Keith Darden, Stephen DeCanio, Justin Fox, Greg Huber,
Matt Kocher, Helene Landemore, David Mayhew, Kevin Miles, Nuno Monteiro, James Morrison, Ryan Oprea, Andrew Reeves, Michelle
Schwarze, Lucais Sewell, Stephen Skowronek, Tariq Thachil, Katrina Wehmeyer, and Rick Wilson for helpful comments and suggestions.
Special thanks for the comments and suggestions made by three anonymous referees.
American Journal of Political Science, Vol. 58, No. 3, July 2014, Pp. 637–652
C 2013,
Midwest Political Science Association
DOI: 10.1111/ajps.12072
637
638
and function on the basis of various decision heuristics
(Lupia and McCubbins 1998). While voters know little
about politics, consumers are typically ignorant of private information, such as CEOs’ names (Akerlof 1970;
Morgan 1978; Nelson 1970; Scitovsky 1950; Stiglitz 1979).
Public ignorance is merely the political manifestation of
our general ignorance of the social world. For it is difficult
for anyone to know if doctors are true experts, whether
bridges and roads are properly built, or how complex
consumer goods, such as computers, function (Giddens
1990, 28–29).
Although modern societies exhibit little diffusion of
scientific understanding, they have developed institutions
that allow laymen to make use of specialists’ technical
expertise without having to acquire the knowledge specialists possess. While voters may use various psychological
heuristics to make political decisions, this article examines
how different social institutions require different kinds
of knowledge to rationally allocate resources (Dollery
and Worthington 1996; le Grand 1991; Wolf 1979, 1981,
1988).
Specifically, this article examines a general problem
associated with social choice under conditions of uncertainty: the difficulty in recognizing the optimal means
to our ends given our inevitable ignorance of the social
world.1 The article compares the kinds of knowledge that
democracy and the market require to rationally allocate
resources and argues that democratic politics exacerbates
the effects of ignorance on human affairs. However, the
epistemic problems created by democratic politics are
mitigated by markets, but for reasons that are poorly
understood.
Seeking to explain why ignorance has different effects
depending upon whether choice is aggregated through
democracy or the market, the rest of this article is organized as follows. The first section defines concepts such as
democracy, the market, firms, and political parties. The
second section uses a thought experiment to explain how
certain characteristics of democratic politics, specifically
the singular, or “exclusive,” nature of political decisions,
creates two problems. First, voters must try to predict the
effects of parties’ policies before they can be implemented
and their effects observed. Second, voters cannot compare
the costs and benefits of parties’ policies, making it difficult to know whether a party has produced policy effects
efficiently or whether another party could have produced
similar effects at a lower cost.
SAMUEL DECANIO
In democratic politics, voters must try to analyze theories purporting to explain the causes of their dissatisfaction and then attempt to predict whether a party’s policies
address the causes of their dissatisfaction efficiently. Since
these predictions must be performed before parties’ policies are implemented and their costs and effects can be
observed, democratic politics exacerbates the effects of
ignorance on human affairs.
This argument applies insights from the socialist calculation debate to critique aspects of democratic politics.2
Although the socialist calculation debate has undergone
five distinct stages (Roemer 1994, chap. 4), this article
offers a sixth iteration of this debate by comparing the
epistemic characteristics of democracy and the market
and does not simply examine the advantages of centralized or decentralized decision procedures.
The third section argues that additional knowledge
problems confront political parties producing the “supply” of policy effects. These problems are derived from
the ambiguous information that election margins reveal
about voter satisfaction with parties’ policies. Since parties produce large policy “bundles,” including disparate
goods such as national security, labor policy, and social
welfare, election margins reveal information about the
entire policy bundle and not the individual policies, composing the bundle. This makes it difficult for parties to
use election margins to reveal how to allocate resources
among the individual policies they produce.
The fourth section argues that instead of trying to
inform voters of complex branches of scientific knowledge, certain institutions and organizations minimize the
amount of knowledge individuals need to make rational
decisions. Specifically, markets and firms exhibit informational advantages over parties and elections because they
facilitate comparisons that allow consumers to judge the
effects produced by specialized scientific expertise without having to understand the knowledge responsible for
producing these effects. The economy of knowledge involved in such comparisons, and the rationalizing effects
these comparisons have upon the population of firms,
causes markets to mitigate the effects of ignorance in ways
that are unrecognized and largely unexplored (Friedman
1998; Pennington 2003; Somin 1998).
The fifth section discusses the argument’s general
theoretical ramifications and qualifies its scope, emphasizing that the informational critique of democratic
politics must be conceptually divorced from government’s
1
I focus on voters’ selection of political agents to rationally allocate resources and ignore arguments regarding representation or
political actors’ motives for holding public office (e.g., Mansbridge
2009; Pitkin 1967; Rehfeld 2009).
2
For the socialist calculation debate, see Fikret and Devine (1997),
Hayek (1945) Lange (1937a, 1937b), Lavoie (1985), Lerner (1937),
Roemer (1994), and von Mises ([1922] 1981).
LOGIC OF SOCIAL CHOICE
redistributive welfare functions.3 Indeed, the vast wealth
inequalities that markets generate may justify wealth
redistribution to facilitate individuals’ ability to “exit”
displeasing social relationships without having to understand the causes of, and political remedies for, these relationships (Dowding et al. 2000; Hirschman 1970; Warren
2011).
Addressing general theoretical questions regarding
modern social institutions and organizations, and building on insights from certain positive theorists (e.g., Dahl
and Lindblom 1953; Lindblom and Cohen 1979), this article examines specific problems associated with knowledge, democracy, and the market and presents a method
for mitigating the effects of ignorance on human affairs.
Conceptual Definitions
This section of the article defines democracy, the market,
the firm, and political parties. While concepts are often
defined in ways that are unrealistic, the lack of realism is
not intended to generate accurate predictions (Friedman
1953) but to maximize the thought experiment’s conceptual utility by deliberately understating the knowledge
problems associated with democracy.
Political parties are typically defined by their electoral
operations, their role in government, and their organizational functions (Aldrich 1995; Crotty 1991; Key 1964;
Strom 1990; Weisberg 2002). I define political parties on
the basis of their authority and the institution society uses
to select them (Schattschneider 1942, chap. 3). Political
parties are defined as organizations that compete for the
ability to produce exclusive goods through the state. The
state is defined as a human community that monopolizes
the ability to make decisions that cannot be legitimately
appealed (see Dahl and Lindblom 1953, 42; Downs 1957,
22–23). Exclusive goods are defined as goods whose substitutes are legally barred from production.
It is important to recognize that exclusivity can be
an inherent characteristic of a good. For example, foreign policy is an exclusive good because it is impossible
for states to implement multiple foreign policies toward
other states simultaneously. However, exclusivity is often a function of the organization that produces goods.
For example, the United States Postal Service (USPS) renders mail delivery an exclusive good by preventing private
firms from competing with it, even though mail delivery
3
I follow Musgrave’s (1959) division of the state’s responsibilities
into macroeconomic stabilization, resource allocation, and income
redistribution. I focus on resource allocation, ignore macroeconomic stabilization, and only briefly discuss redistribution.
639
could be privatized. While many public goods are exclusive, exclusive goods are not necessarily public goods;
this characteristic is conferred whenever parties produce
goods.
In addition to their unique form of authority, parties are also conceptually distinguished by the mechanism society uses to select them: democratic elections.
Democracy is defined as a method of selecting political parties based upon the competitive struggle for votes
(Medearis 2001, chap. 4; Schumpeter 1942, 269). While
other definitions of democracy focus on different aspects
of the political process (e.g., Dahl 1971; Pateman 1970;
Przeworski 1991; Shapiro 2003), I use Schumpeter’s definition because it places minimal informational requirements upon voters, merely requiring them to evaluate parties that are competing for power. If we define democracy
to require voters to deliberate in ways that meet certain
criteria, such as justifying their preferences in ways that
are universalizable or meet standards of reasonableness,
voters must possess information beyond which party they
prefer, and the informational demands they face will only
increase.
I ignore empirical questions regarding party influence over government and unrealistically assume parties
exhibit homogeneous preferences, perfectly control their
members, and are faithful agents of the electorate that do
not manipulate public opinion. While these assumptions
are unrealistic, introducing greater degrees of realism will
exacerbate the knowledge problems exhibited by democratic politics. For if parties cannot control their members, shirk, or manipulate public opinion, they will be
more difficult for voters to control (Gilens 2005; Hacker
and Pierson 2005a; Jacobs and Shapiro 1996; Stokes 1998).
In addition to political parties, modern societies use
private firms to produce goods and services. Unlike parties, firms do not compete for exclusive authority over
goods; rival firms’ products are sold simultaneously, and
firms compete for relative shares of markets. Parties’ production of exclusive goods, and the absence of this form
of authority among firms, constitutes the “fundamental
difference” between economic and political competition
(Stigler 1972, 98; Miller 1999).
Aside from possessing different kinds of authority,
firms and parties face different selection mechanisms.
While elections grant parties authority over exclusive
goods produced by the state, market sales grant firms
control over relative shares of markets. The market is defined as a method for selecting among competing firms
on the basis of the competitive struggle for consumers’
dollars.
It must be emphasized that I do not rely upon neoclassical assumptions regarding perfectly competitive markets
640
or perfectly informed consumers. Instead, I use an
Austrian depiction of the market system as an entrepreneurial discovery process where competition is
never perfect and consumers are never perfectly informed
(Boettke 2001, chap. 3, 2002; Hayek 1948, chap. 5; Kirzner
1973, 1985, 1997). By depicting the market system as a
quasi-evolutionary discovery process exhibiting imperfect information and imperfect competition, I accept informational critiques of neoclassical models of the market, critiques of the first and second theorems of welfare
economics (Greenwald and Stiglitz 1986; Stiglitz 1994,
chaps. 3, 4), and Grossman and Stiglitz’s (1980) arguments that market prices exhibit imperfect and asymmetrical information.
Despite recognizing these imperfections and the
problems markets face with externalities and public
goods, I focus on examining whether knowledge problems are magnified depending upon the institution used
to aggregate social choice. Thus, I do not simply examine
whether deviations from certain ideal conditions occur,
but I focus on determining whether certain institutions
are relatively more effective in coordinating social action
when information is imperfect.
I argue markets and elections are similar institutions,
as both firms and parties compete to collect dollars or
ballots from consumers or voters in exchange for goods.
Firms and parties are granted different types of authority
over the production of goods depending upon how
many dollars or ballots they collect. Democracy and the
market are distinguished by quantitative difference in the
distribution of “votes” (ballots or dollars), the frequency
of elections or market “sales,” and the number of “products” (goods or policies) produced by rival organizations
(Perry and Rainey 1988, 196). However, these differences
have important implications for the types of knowledge
democracy and the market need to rationally allocate
resources.
Elections and Voters’ Demand for
Policies
This section of the article uses a thought experiment to
examine the knowledge that voters must possess if they
use parties and elections to produce a private good, a
fuel-efficient car.4 The thought experiment focuses on a
private good because public goods’ costs and benefits are
difficult to measure and because voters cannot experience
them in the same way as private goods (Elster 1986, 111;
4
See Kuhn (1979) and Sorensen (1992) for thought-experiment
methodology.
SAMUEL DECANIO
Friedman 1998; Wolf 1981). Thus, focusing on a private
good, and not the public and regulatory goods that exhibit
weaker forms of information feedback, will understate the
knowledge problems facing democratic politics.
While the thought experiment examines the difficulties associated with improving a private good’s efficiency,
voters might seek other ends, such as justice or equality.
The thought experiment focuses on efficiency because of
its conceptual simplicity, and the difficulty in measuring
other ends, helps illustrate the knowledge problems facing
democratic politics.5
Finally, the thought experiment assumes the election
only focuses on the production of a fuel-efficient car and
excludes all other issues. Since parties produce multiple
policies, this assumption is unrealistic. However, since
knowledge problems are exacerbated if voters must evaluate and make trade-offs among multiple policies, this
assumption also understates the knowledge voters need
in democratic politics.
Assuming voters want to improve a car’s fuel efficiency, what kinds of knowledge would be necessary for
parties and elections to achieve this end? If democratic
politics were used to try to improve the car’s fuel efficiency, voters would use elections to select a party that
would be given the authority to produce cars, and during elections, rival parties would propose different methods for improving the car’s fuel efficiency. For example,
parties might endorse different engine designs, such as
changing the car engine’s cylinders, using different ball
bearings, or using innovative materials in the engine’s
camshafts. Other parties might endorse altering aspects
of the cars that were unrelated to the engine’s design, for
example by reducing the car’s weight.
For voters to select a party that improves the car’s fuel
efficiency, they must overcome two primary difficulties.
First, voters must accurately predict the effects of rival
parties’ policy proposals before the party’s policies can
be implemented and their effects observed. Since parties
compete for authority to produce exclusive goods through
the state, rival parties’ policies cannot be implemented
simultaneously, and voters cannot observe the effects of
different parties’ policies until after they have made their
electoral decisions, the new party is placed in power, and
its policies are implemented.6
In the context of the thought experiment, voters
would have to accurately predict the effects of different
5
For a discussion of this use of thought experiments, see Popper
([1935] 2002, 466–67).
6
This suggests that the characteristics of “search” goods that can be
experienced prior to their purchase and “experience” goods that
are consumed after their purchase may be conferred by the type of
organization producing them (see Laffont and Tirole 1993).
LOGIC OF SOCIAL CHOICE
parties’ proposals for changing the engine design, and
they would have to do so before the engine is redesigned
and the effects of the alterations are observed. If voters
do not understand which engine components need to be
altered to improve the car’s fuel efficiency, they could elect
a party into power that would introduce changes that did
not improve fuel efficiency.
Yet for voters to make such predictions, they must
understand significant amounts of scientific knowledge
regarding engine design, and they must draw correct inferences from this information. Since only one car is produced at a time, voters cannot compare different parties’
car designs and select the one they find preferable, but
they must try to predict which party’s proposed alterations will have the desired effects (see Tirole 1994). The
difficulty in making these predictions is derived from parties’ exclusive authority over the production of policies
and constitutes the principal knowledge problem exhibited by democratic politics.
However, voters also confront a second problem. In
addition to having to predict the effects of parties’ policies
before they are implemented, voters must also determine
whether the effects of parties’ policies are produced efficiently. The problem of rational resource allocation does
not simply involve whether successive improvements can
be made to the quality of goods. For voters to use parties and elections to rationally allocate resources, they
must identify parties whose policies improve the quality
of goods without stripping resources from the production
of other, more necessary, goods.
For example, building the entire car out of expensive,
but very light materials, such as titanium, would improve
the car’s fuel efficiency. If the new car were built entirely
of titanium, voters would observe the car’s fuel efficiency
improved after the new party was elected into power.
Yet this improvement would not demonstrate that voters
solved the allocation problem because the high cost of titanium could have resulted in the unnecessary sacrifice of
other goods. Voters are not simply trying to select parties
that improve the quality of goods; improvements must be
generated without unnecessarily stripping resources from
the production of other, more necessary, goods.
During elections, voters must try to predict whether
a challenging party will improve the quality of the incumbent’s goods before they are elected into power and
the effects of their policy decisions can be observed. After trying to make these predictions, voters must finally
somehow determine whether the improvements a party
produced were “worth” the costs of doing so without any
metric for measuring trade-offs among different goods.
Unfortunately, these problems persist even if voters
are retrospectively evaluating the incumbent party (Fere-
641
john 1986; Fiorina 1981; Kiewiet and Rivers 2005; Kinder
and Kiewiet 1979; Powell 2000). Retrospective voting does
not solve these knowledge problems for two reasons. First,
the singular nature of political decisions makes it difficult
for voters to determine whether they should be satisfied
with the effects produced by the incumbent party’s policies. Since voters only observe a single set of policies and
social conditions, it is difficult for voters to know whether
another party’s policies would have produced better effects at a lower cost.
In the case of the thought experiment, it is difficult for
voters to know whether they should be satisfied with the
fuel efficiency of the incumbent party’s car. It is possible
that, given existing scientific knowledge, the incumbent
party has maximized the engine’s efficiency, yet it is also
possible that another party’s engine would be more efficient and cost less. However, it is difficult for voters to
know whether they should be satisfied with the effects
produced by the incumbent party because they cannot
observe the fuel efficiency of other parties’ cars.
Since political parties cannot produce their cars simultaneously and then allow voters to compare them,
voters must try to conduct counterfactual thought experiments regarding how another party’s policies would
have influenced fuel efficiency. Voters must then try to
draw correct inferences from significant amounts of scientific knowledge regarding the effects a different party’s
policies would have produced. Yet these counterfactuals
cannot be tested in empirical reality due to the singular and unrepeatable nature of political decisions (Fearon
1991, 173).
While voters can compare the social conditions that
existed under two different parties, after a party is removed from office and replaced with another, social conditions, electoral preferences, and the stock of scientific
knowledge may change during the two periods in ways
that make them difficult to compare. In the case of the
thought experiment, the science of engine design might
have changed by the second election, fluctuating gas prices
could make fuel efficiency more or less imperative, and
advances in alternative fuels or new means of transportation may have altered the importance of a car engine’s fuel
efficiency. Such changes make it difficult to compare the
effects produced by rival parties’ policies after elections.
However, retrospective voting faces a second, and
more significant, problem. If voters are trying to improve the goods parties produce, and not simply penalize
parties for producing displeasing effects, they must determine whether another party’s policies will be better
than the incumbent’s. If voters are retrospectively penalizing parties for producing displeasing effects without
any knowledge of other parties’ policies, they could elect
642
a party into power whose polices were worse than the
incumbent’s.
To prevent this from occurring, voters must have
prospective knowledge regarding the comparative effects
of different parties’ policies and must make predictions
that experts are often incapable of rendering (Tetlock
2005). Although these problems may be exacerbated by
voters’ low incentives for collecting information and partisan bias, the epistemological problems created by the
singular nature of political decisions would persist even
if voters had high incentives to collect information and
were completely unbiased (Bartels 2002; Jerit and Barabas
2012; Taber and Lodge 2006).
Unfortunately, the knowledge problems facing voters
are exacerbated as the thought experiment is made more
realistic. While the thought experiment focuses on the
production of a single private good, parties typically produce multiple public and quasi-public goods. Introducing these goods into the thought experiment complicates
voters’ calculations because these goods generate weaker
forms of information feedback than private goods (Jervis
1997, chap. 4).
Consider the case of national security: if a state produces a new weapon system, it is difficult for voters to
determine how this decision influences national security.
The new weapon system might increase a nation’s security or it might have been a waste of resources, yet unless
it is tested against the country’s adversaries, there are few
ways to reveal this information.
Similar problems exist with quasi-public goods, such
as market regulations, that involve social conditions that
can be more precisely measured. Although conditions
such as aggregate unemployment rates or GDP growth
can be measured, it is difficult for voters to determine how
regulatory decisions influence these conditions because
a single set of social conditions is correlated with the
incumbent party’s policies. The singular nature of the
social conditions correlated with the incumbent party’s
policies makes it difficult for voters to observe what would
have happened had the incumbent party’s policies never
been implemented.
Consider a party’s attempts to limit unemployment
during a recession. If unemployment is 8%, and after a
party implements deficit spending to limit unemployment the unemployment rate climbs to 10%, some might
conclude the party’s policies have failed. However, this
inference is not justified because unemployment might
have reached 15% had the party’s policies not been implemented or if a different party’s policies were implemented.
This problem exists because voters cannot compare the
effects of different parties’ policies, and this makes it difficult to assess the incumbent party’s effectiveness.
SAMUEL DECANIO
Yet this example does not capture the full complexity
of the problem because unemployment can be reduced
at the expense of other ends or through trade-offs with
other goods or conditions. For example, aggressive deficit
spending could curtail unemployment, but it might generate inflation that imposed disproportionate costs on
different voters at a later point in time. These costs could
be unequally allocated, for example, falling upon voters
who were older or younger, held debt, or were employed
in certain sectors of the economy. Even if voters understand the causal relationships between variables such as
inflation and unemployment, they may have difficulty
calculating how parties’ policies influence their welfare
(Arnold 1992).
Of course, these problems may be more significant
for certain types of goods. For example, it may be relatively easy for voters to reward parties that act to avoid
famines or other situations where the actions necessary
to address a social problem are relatively simple (Sen
1981, 1999). However, Sen (1999, 154) recognizes that
although democracy is relatively effective in preventing famines and other disasters whose causes are simple and easy to understand, democracy is less effective
in addressing the far more numerous complex problems facing modern societies. The regulation of market
economies, optimal responses to environmental problems, trade negotiations, decisions about war, and diplomacy with distant and culturally dissimilar societies involve complicated and counterintuitive social processes
that often cause knowledgeable experts to err (Jervis 2011;
Tetlock 2005).
Finally, the thought experiment is unrealistic because
the election is conducted over a single issue. In reality, parties produce large policy “bundles” that include
multiple goods ranging from environmental protection
and labor regulations to foreign policy, education, and
health care. If the thought experiment is altered to involve multiple goods, voters’ electoral decisions become
significantly more complex because they must attempt
to calculate trade-offs between the costs and benefits
of the individual policies composing the parties’ policy
bundle.
This dramatically compounds the knowledge problems voters face because there is no metric for calculating
trade-offs between “units” of the goods parties produce
(Dahl and Lindblom 1953, 173). For example, it is difficult to compare a unit increase in medical insurance with
a unit decrease in environmental protection, and it is even
more difficult for voters to make these calculations across
multiple issues. As Almond (1960, 6) notes, while in both
markets and elections the public “buys” goods or policies
“produced” by rival organizations:
LOGIC OF SOCIAL CHOICE
[T]he policy market is not as simple as an economic market. There is, unfortunately, no simple policy currency in which the cost of alternative policies can be computed. The policy products cannot be felt, tasted, or weighted. They are
predictions of consequences of action, hardly a
tangible product with regard to which consumer
preferences can easily be registered.
Elections require voters to analyze complex social
phenomena and choose among rival parties before their
policies are implemented and their costs and benefits observed, and they must do so lacking metrics for measuring
trade-offs between parties’ policies (Downs 1957, 45).
While the difficulty of these calculations is exacerbated
by social complexity and parties’ production of multiple
policies, these problems are ultimately derived from political parties’ exclusive authority and voters’ corresponding
inability to compare the costs and effects of rival policies
simultaneously.
Political Parties and the Supply of
Policy Effects
While voters confront knowledge problems during elections, additional problems confront parties producing the
“supply” of policy effects. Political parties and private
firms confront an identical allocation problem: both organizations are attempting to produce goods or policies to
satisfy popular preferences, but they are uncertain about
how to make their goods or policies more appealing than
rival organizations (Kirzner 1985; Riker 1984; Roemer
2001; Schlesinger 1984, 382; Sheingate 2003).
Despite facing an identical allocation problem, parties and firms have different methods for revealing social
satisfaction with the goods they produce. Customer satisfaction with firms’ products is revealed by market prices
and profit-loss calculations; voter satisfaction with parties’ policies is revealed by election margins (Wilson 1991,
chap. 7). While both market prices and election margins
are quantitative metrics revealing social satisfaction with
rival organizations, these metrics reveal different kinds of
information, and these differences have important implications for the rationality of parties’ and firms’ allocation
decisions.
To illustrate these differences, we return to the
thought experiment and relax the assumption that the
election focuses on a single good. This is done to introduce
a higher degree of realism into the analysis and because the
information problem facing parties is exacerbated when
643
they produce multiple policies. Two additional assumptions are introduced. First, unlike public-choice theorists,
I make no assumptions regarding parties’ motives. Parties may be motivated by a sense of public duty or narrow
self-interest, just as private entrepreneurs may be selfinterested or motivated to create new products simply
for the thrill of invention. This assumption is made to
demonstrate that the knowledge problems facing parties
exist independently of their incentive structures.
Second, market prices are not assumed to perfectly
incorporate all available information (e.g., Fama 1970).
It is critical to deny the “perfect” functioning of market
prices and to emphasize that in certain markets, such as
financial markets, the information conveyed by prices is
systematically less informative than prices for other goods
(Caginalp, Porter, and Smith 2000; Grossman and Stiglitz
1980; Smith, Suchnek, and Williams 1988). Instead of assuming prices perfectly incorporate all available information, my analysis focuses on comparing the information
conveyed by market prices with the information revealed
by election margins.
Markets and elections are deeply similar methods for
selecting among rival organizations. During both elections and market sales, voters and consumers select organizations, parties, or firms to produce goods in exchange
for slips of paper, ballots, or dollars. Markets and elections
are distinguished by quantitative differences in the number of organizations that produce goods simultaneously,
the degree of inequality in the distribution of ballots or
dollars, and the frequency of market sales and elections.
In addition to these quantitative differences, profit
margins and election margins communicate qualitatively
different types of knowledge. While market prices reveal
information regarding consumers’ comparisons of rival
firms’ products, election margins reveal voters’ comparisons of the incumbent’s policy bundle with the hypothetical effects that might be produced by another party’s
bundle. Since different parties’ policies cannot be implemented simultaneously and compared, voter satisfaction
with the incumbent party is measured relative to the hypothetical satisfaction they predict they will experience if
another party is voted into power.
These differences have implications for parties’ ability to assess how their policies influence social welfare.
Specifically, since parties produce large policy bundles
and voters possess single ballots, elections reveal little information about social satisfaction with the individual
policies comprising the incumbent party’s policy bundle. Election margins reveal information about social
satisfaction with the aggregate effects produced by the
incumbent party’s policy bundle, but voters’ evaluations
of the individual policies comprising the bundle cannot be
644
disaggregated from the signal the election margin communicates to a party. This make it difficult for parties
to use election margins to determine how to allocate
resources among the individual policies they produce,
a problem that exists independently of the difficulty of
collecting costly information that exists but cannot be
known in its entirety (e.g., Hayek 1945; Stiglitz 1961,
2000).7
The informational problem confronting parties will
be illustrated by examining the information election margins reveal when parties produce multiple goods. If parties were competing to produce fuel-efficient cars, foreign
policy, and public education, how would they know how
to direct resources among these policies? If an incumbent
party won an election focused on the production of fuelefficient cars, foreign policy, and public education, the
party would observe that voters preferred their provision
of these goods to other parties.
However, it is difficult for the party that won the election to discern social satisfaction with their provision of
the individual policies comprising this policy bundle because multiple interpretations could be given for why the
party won the election. Voters could be satisfied with the
incumbent party’s production of the car but dissatisfied
with their foreign policies and provision of education.
Alternatively, voters could be dissatisfied with the party’s
foreign policy but satisfied with their car and environmental policies. Yet it is also possible that voters are ambivalent about foreign policy and the car’s fuel efficiency,
but they care so intensely about education that they want
to redirect all the resources consumed by foreign policy
and car-engine design to education policy.
Since these policies are bundled together and voters
cannot evaluate them individually, the election margin
cannot reveal which of these interpretations is correct, nor
can the election reveal the specific amount of resources
voters want to devote to each of the three policy areas. Yet
for political parties to allocate resources to satisfy social
preferences, parties must determine which interpretation
accurately describes voters’ preferences. For if a party were
elected to power because voters wanted the party to alter
foreign policy—but not any of the other policies—and
the party did not realize this, the party could allocate
resources in ways that did not reflect social preferences.
Voters’ possession of single ballots and parties’ production of policy bundles containing multiple goods
make it difficult for elections to reveal voters’ satisfaction with the individual policies parties produce. This
SAMUEL DECANIO
makes it difficult for parties to know how to allocate resources among policies, and this problem becomes more
severe as the number of policies parties produce increases.
While firms often bundle products together to desensitize
consumers to their costs, this problem is more severe in
politics because parties produce a far greater number of
goods than firms (Adams and Yellen 1976; Soman and
Gourville 2001).
Nor can public opinion polls or cost-benefit analysis
overcome these problems. Despite improving the accuracy of information about public preferences (Geer 1996),
correlations between shifts in public preferences and policy (Page and Shapiro 1992), the ideological tenor of
macro-opinion (Erikson, MacKuen, and Stimpson 2002),
and whether voters want “more” or “less” of a given policy
(Wlezien 1995; Soroka and Wlezien 2005), polls do not
reveal the specific “prices” voters are willing to “pay” for
individual policies. Similarly, cost-benefit analysis suffers
from the simple problem that the price voters are willing to pay for goods, and the benefits they receive from
them, cannot be known prior to their production and
consumption.
Nor can input prices be used to mimic the market
mechanism by setting publicly produced goods’ marginal
prices to equal their marginal costs (Becker 1958; Musgrave 1969; Roemer 1994; Sunstein 2002).8 Theoretically,
input prices can be used to calculate profit margins for
publicly produced goods. For example, by ordering the
United States Postal Service (USPS) to generate positive
profits, and by using input prices to calculate marginal
costs, the USPS could be evaluated in ways that mimic
the market process. However, the information revealed
by these calculations becomes ambiguous in the absence
of rival firms’ products (Wolf 1979, 114, 116).9
If the USPS believes consumers would be made better off if mail were delivered more quickly at a slightly
higher price, and after adjusting their delivery methods,
their profits increased, the higher profit margin could
indicate that society preferred this new combination of
resources. Unfortunately, the USPS’s exclusive authority
over mail delivery makes it difficult to determine what
profit margins reveal about social welfare. For it is possible that society was less satisfied with the higher cost of
quicker mail delivery, but since they have no alternative
way of delivering mail, they must pay whatever prices the
USPS charges. Since consumers cannot “exit” from their
8
7
Milkman et al. (2012) argue bundling may reduce voters’ lossaversion bias; however, they assume the costs and benefits of individual policies is known, a point that I am suggesting is the basis of
the allocation problem facing parties.
While voters may have consistent budgetary preferences (Hansen
1998), consistency cannot reveal voters’ preferences for specific
levels of taxation, expenditure, or policies.
9
For cost-benefit analysis, see Sunstein (2002).
LOGIC OF SOCIAL CHOICE
relationship with the USPS, the information conveyed by
a profit margin becomes difficult to interpret.
Thus, even if input prices and cost-benefit analysis
are used to determine the marginal costs of an organization’s products, when an organization possesses exclusive authority, it becomes difficult to interpret what
a profit margin reveals about an organization’s satisfaction of social preferences. Although the difficulty in accurately pricing public goods is well known, this inferential
problem is created whenever an organization gains exclusive control over the production of private goods as
well.
Nor does decentralization, “voting with your feet,”
federalism, or using state governments or cross-country
comparisons solve these problems (Tiebout 1956). Decentralization, federalism, and foot voting do not solve the
knowledge problem for two primary reasons. First, heterogeneity among states’ characteristics frustrates voters’
ability to draw correct inferences about policy effectiveness because policies that are effective in one state may not
be effective in another. Voters’ inability to observe how
different states’ characteristics may influence policy effectiveness frustrates the replication of quasi-experimental
conditions of treatment and control.
Second, voters within states may exhibit different
preferences even if other aspects of the states are similar. For example, one state’s voters might be risk averse
and hence be, for example, more willing to accept costs associated with certain types of social insurance than voters
living in another state. If voters’ preferences are dissimilar
across states, it may be difficult to evaluate rival policies’
effectiveness even if states are similar along other dimensions. Even if citizens “vote with their feet,” moving to
new areas where parties implement different policies, it
is not clear whether changes in voters’ utility are due to
specific parties, policies, or other aspects of the new area
they move to. These problems exist in addition to the
high costs and the high degree of policy bundling that
voters confront when they move to a new area. For these
reasons, decentralization, foot voting, and policy experimentation among states may not solve the knowledge
problems facing democratic politics.
These problems, of course, may be more severe in
certain cases. For example, it may be easier to make comparisons between states with similar cultural, economic,
political, and demographic characteristics or if a policy
issue is simple. However, such comparisons still face the
basic problem posed by the singular nature of political decisions: voters cannot observe what would have happened
had a policy not been implemented, making it difficult
to draw correct inferences regarding policy effectiveness
from other states or levels of government.
645
While different political decisions may be disaggregated at different levels of government—for example, giving certain responsibilities to governors or school
boards—disaggregation does not address the basic problem caused by the exclusive nature of political decisions.
Although disaggregating political decisions may mitigate the effects of bundling, the basic inferential problem posed by the singular nature of political decisions
persists.
Furthermore, foot voting and various forms of decentralization may exacerbate voters’ knowledge problems,
requiring them to collect and interpret political information at different levels of government and in different
geographic areas. This indicates that knowledge problems
will remain, or may be exacerbated, if specific responsibilities are delegated among actors at different levels of
government.
While voters have difficulty predicting policy effects
during elections, the ambiguous information revealed by
election margins makes it difficult for parties to rationally
allocate resources among the individual policies they produce. Although these problems are compounded by parties’ production of multiple policies and the complexity of
modern political decisions, they are derived from parties’
exclusive authority over the production of goods. Since
exclusive authority is a fundamental characteristic of political parties, the problems confronting both the “supply”
and “demand” sides of democratic politics appear largely
intractable.
Markets, Firms, and the Knowledge
Problem
While democratic politics exhibits difficult knowledge
problems, this section of the article argues that markets mitigate the effects of ignorance in ways that remain
poorly understood. Although the idea that markets and
prices aggregate information has a long history in the
social sciences, this section develops new explanations
for why markets mitigate the epistemic problems facing
democratic politics, and also offers a new explanation
regarding the information revealed by the market-price
mechanism.
I argue the absence of exclusive authority among
firms allows consumers to compare rival firms’ products
in ways that eliminate the counterfactual analyses necessary in democratic politics. By facilitating simultaneous
comparisons of firms’ products, markets do not simply
aggregate dispersed and fragmentary knowledge (Hayek
1945). Rather, markets aggregate consumers’ evaluations
646
of rival goods that embody tacit knowledge that consumers cannot verbalize or explain. Asking consumers to
explain why they prefer certain products would be akin
to trying to teach someone to ride a bicycle by explaining
the mathematical relationships between the rider’s velocity and the radius of the curve on the side of the rider’s
imbalance (Polanyi 1969, chap. 10).
The aggregation of consumers’ comparisons has important implications for the type of knowledge revealed
by the price mechanism. Specifically, consumers’ possession of multiple “ballots” (i.e., dollars) creates quantitative metrics—market prices—which reveal information
about firms’ relative effectiveness in satisfying consumer
demands. Unlike election margins, prices aggregate simultaneous comparisons of individual (i.e., debundled)
products that have already been produced and are not aggregations of “units” (i.e., ballots) revealing hypothetical
predictions of future satisfaction.10
Prices create a quasi-evolutionary tendency directing
resources away from inefficient firms without requiring
anyone to understand why certain firms are outperforming others (Alchian 1950; Moe 1984, 762). This tendency
never reaches a perfect state of equilibrium, and prices are
always “wrong” in the sense that new technology, innovation, and shifting consumer preferences, constantly create
new potential profit opportunities that are not reflected
by existing prices at any one point in time (Kirzner 1997,
70–71).
The single most important aspect of this process is
the economy of knowledge with which it functions. By
eliminating consumers’ need to understand why they
find certain firms’ products preferable, and by creating
metrics—prices—that reveal firms’ relative effectiveness
in satisfying consumer preferences, markets mitigate
the informational problems confronting the “supply”
and “demand” sides of democratic politics. However,
the quasi-evolutionary pressure that markets impose
upon the population of firms does not exist in politics
because voters’ inability to compare parties’ policies
simultaneously, and the ambiguous information revealed
by election margins, eliminates the underlying condition
necessary for this process to occur.
To illustrate how markets mitigate the epistemic
problems facing democratic politics, a final iteration of
the thought experiment examines the knowledge consumers must possess when markets and firms produce
fuel-efficient car engines. The second section examined
how democracy requires voters to predict the effectiveness
10
This is not true of all markets, as financial and insurance markets
involve predictions regarding future satisfaction with firms’ products. However, the singular nature of political decisions ensures
this condition is always created by democratic politics.
SAMUEL DECANIO
of parties’ proposals for changing the engine’s design. The
third section argued election margins reveal ambiguous
information about social satisfaction with the policy bundles parties produce.
The thought experiment is now altered to examine
the knowledge consumers must possess when markets
and firms, not parties and elections, produce cars. With
the exception of the organizations and institutions producing the car, all other aspects of the thought experiment are held constant. Parties and firms are both trying
to redesign the car in ways that consumers or voters will
find preferable to rival organizations, and voters and consumers are trying to identify the party or firm that will
improve the car’s fuel efficiency.
The most important difference introduced into the
thought experiment is that, unlike politics, firms do not
compete for exclusive authority over the production of
cars. While elections grant parties power over the production of exclusive goods, markets allow multiple firms’
goods to exist simultaneously. The simultaneous existence of multiple firms’ cars has three important epistemic
implications.
First, unlike elections where voters must try to predict
the effects of parties’ policies before casting their ballots,
markets allow consumers to compare rival firms’ products
before making their purchasing decisions. The simultaneous existence of rival firms’ products allows consumers to
compare products and choose those that, for reasons they
will never understand, they find preferable. Consumers
may be ignorant of the science of engine design, they may
have no understanding of the merits of different construction materials or methods, and they may not understand
why certain engines are cheaper than others. Yet so long as
consumers can compare rival firms’ cars, such ignorance
will not impede the satisfaction of their preferences.
The simultaneous existence of multiple firms’ products eliminates consumers’ need to understand why a
product is preferable to the alternatives. Despite consumers’ ignorance of the vast amounts of scientific knowledge embodied in firms’ products, their comparisons
of rival firms’ products allow them to evaluate the effects produced by such knowledge without ever having to
understanding the knowledge responsible for producing
such effects.
Second, markets allow consumers to observe products’ cost prior to their purchasing decisions. During elections, voters must not only try to predict the effects of rival parties’ policies; they must also try to predict policies’
costs before policies are implemented. However, since
firms do not enjoy exclusive authority, the cost of their
products are observable prior to consumers’ purchasing
decisions. This allows consumers to observe information
LOGIC OF SOCIAL CHOICE
about the costs of firms’ products in ways that are not
possible when voters are trying to determine the cost of
parties’ policies.
Third, while parties have difficulty using election
margins to assess social satisfaction with their policies,
the aggregation of consumers’ “ballots” (i.e., dollars) reveals information about firms’ comparative effectiveness
in satisfying consumer preferences. The profit-loss calculations that prices facilitate allow resources to be directed
to firms that efficiently satisfy consumer preferences without requiring anyone to understand why.
Instead of allowing consumers to simply compare
goods and select those they find preferable, democratic
politics requires that voters understand why they are dissatisfied with the incumbent party’s policies and then try
to determine whether a rival party is proposing policy
changes that efficiently address the causes of their dissatisfaction. These calculations are complicated by voters’
difficulty in determining whether they should be satisfied
with an incumbent’s policies, their inability to observe the
costs or effects of rival parties’ policies before voting, the
large number of issue dimensions they must try to assess,
and the absence of metrics for measuring the costs and
benefits of different policies and trade-offs.
While both market prices and election margins are
quantitative metrics that reveal information about rival
organizations’ satisfaction of a customer base, these metrics reveal qualitatively different kinds of information.
Market prices facilitate comparisons of firms’ satisfaction
of consumer preferences, yet election margins reveal voters’ predictions regarding their hypothetical satisfaction
with the future effects of a party’s policies relative to the
effects experienced under the incumbent party.
Furthermore, market prices also reveal more precise
information than election margins because consumers’
possession of multiple “ballots” (i.e., dollars) allows them
to allocate them unequally among goods and firms. This
allows consumers to reveal their preferences in ways that
are not possible in politics due to voters’ possession of
singular ballots and parties’ production of multiple policies. These problems are compounded as parties produce
more policies, for not only must voters try to predict,
for example, whether a hypothetical improvement in fuel
efficiency is worth a hypothetical cost, but similar calculations must also be conducted for all the policies parties
produce, and trade-offs between policies must then be
compared without any metric to measure the marginal
costs and benefits of each policy.
Markets simplify these calculations because firms do
not bundle as many goods as parties, and markets’ common unit of measurement (dollars) allows consumers to
compare different goods’ marginal effects. By minimiz-
647
ing consumers’ need to predict the costs and benefits of
rival products prior to their purchasing decisions, markets minimize the knowledge problems confronting the
“demand” side of democratic politics.
These comparisons eliminate anyone’s need to understand why resources are flowing in specific directions
or why consumers prefer certain firms’ products. Consumers’ ignorance of the scientific knowledge embodied
in firms’ products is rendered irrelevant by their ability
to compare rival firms’ goods. The aggregation of these
comparisons, and the profit-loss calculations made possible by market prices, imposes a quasi-evolutionary selection pressure upon the population of firms, mitigating the
knowledge problems created by political parties’ bundling
of policies.
It is critical to deny that this process functions “perfectly” or that it incorporates all available knowledge.
While markets mitigate the knowledge problems facing
the “supply” and “demand” sides of democratic politics,
they do not, and cannot, eliminate them completely. Despite recognizing that markets exhibit various epistemic
problems, these problems are exacerbated by the singular
nature of public decisions, the large number of policies
parties produce, and voters’ inability to compare tradeoffs among policies. Hardly occurring because consumers
are better informed than voters or because different incentives exist in each realm of action, markets mitigate
the epistemic problems exhibited by democratic politics
because they eliminate individuals’ need for knowledge or
understanding, and because they create metrics that reveal which firms are satisfying social preferences without
requiring anyone to understand why.
Conclusion: Rationality in State and
Society
This article examined why different institutions require
different types of knowledge to rationally allocate
resources and argued that democratic politics creates
difficult knowledge problems for modern societies. By
granting political parties exclusive authority over the production of goods and services, by preventing voters from
comparing the effects of parties’ policies, and by requiring
voters to evaluate multiple policies without a common
metric for comparing trade-offs among them, democratic
politics exacerbates the effects of ignorance on human
affairs.
Furthermore, the large number of policies that
parties produce makes it difficult for election margins
to reveal social satisfaction with individual policies,
648
indicating a second set of knowledge problems faces parties that are attempting to rationally allocate resources.
The epistemic problems facing voters and parties indicate
that democratic politics exhibits a series of intractable
knowledge problems that impede the rational allocation
of resources, or the attainment of any other end for that
matter.
Unfortunately, this indicates that modern societies
do not simply exhibit simply increasing levels of rationalization. According to Weber (1958, 139), rationalization
occurs as societies reduce magical and incomprehensible
forces to matters of technical control and calculation. Yet
as markets have rationalized society and expanded into
spheres previously legitimated by non-instrumental rationalities, the progressive democratization of society, a
trend that has been described as a “central tendency” of
our time, is generating a countervailing tendency (Heilbroner 1970, 4).
However, this does not mean that rationalization is
not occurring. Although specialized scientific knowledge
is increasingly difficult for laymen to comprehend,
markets facilitate comparisons that minimize consumers’
need for knowledge or understanding. The aggregation of
these comparisons creates a quasi-evolutionary selection
process that eliminates or weakens inefficient firms,
rationalizing society without requiring anyone to understand why. By eliminating the underlying condition—the
simultaneous existence of organizations’ products
necessary for this process to function—democratic
politics exacerbates the effects of ignorance on human
affairs.
The singular nature of public decisions, and the resulting impossibility of approximating experimental conditions of treatment and control, limits our capacity for
generating scientific knowledge about modern political
institutions.11 Indeed, even if voters were better informed
of politics, the difficulty of accurately predicting policy
effects might cause them to err just as relatively betterinformed experts often do. This indicates that our understanding of modern political institutions may be consigned to resemble branches of knowledge prior to the
invention of the experimental method.
It must be emphasized that this epistemic critique of
democratic politics is not applicable to the state’s redistributive welfare functions. Indeed, this article’s argument
may justify redistribution to allow individuals to exit displeasing social relationships without requiring anyone to
understand the optimal political remedies for these re11
Since this problem is derived from the singular nature of political
institutions’ decisions, this issue is less relevant for the study of
mass political behavior.
SAMUEL DECANIO
lationships. This indicates that the scope of this critique
must be circumscribed within limits that do not fit neatly
within existing ideological divisions.12
Furthermore, this argument remains susceptible to
criticisms of instrumental rationality, and these criticisms cannot be dismissed lightly (Horkheimer 1946;
Lane 2001). It is difficult to ignore the dehumanizing
effects of the iron cage, its cultural degeneracy, and the
petty creatures it houses. Despite recognizing that individuals are often motivated by ends such as equality,
fairness, and justice, the difficulties associated with measuring these values, and assessing trade-offs among them,
indicate that knowledge problems are merely exacerbated
when democratic politics is used to attain ends other
than efficiency. While voter ignorance poses problems for
the rational allocation of resources, similar problems exist with issues involving inequality, justice, and fairness
(Bartels 2008; Gilens 2005; Hacker and Pierson 2005b).
Finally, it is critical to emphasize that markets suffer from innumerable defects; they are prone to multiple inefficiencies and allocation problems, and no attempt to minimize these problems is made here. Unfortunately, the singular nature of political decisions, and the
epistemic problems generated by this aspect of modern
politics, indicates that these problems are merely exacerbated in the public sphere. If the satisfaction of human
ends is worth pursuing, and it should be emphasized
that this assumption must be made by all of the social
sciences, there are reasons to maximize the scope of institutions that rationalize society with an economy of
knowledge.
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