Comment on Ordeshook, “Pareto Optimality in Electoral Competition”

Extract

The confusion in this paper appears to be caused by the author's failure to appreciate fully a lengthy footnote (footnote 5) in my article. In this note a distinction was made between announcing or failing to announce a mixed strategy. The results from either of these approaches will be Pareto optimal ex post but not ex ante. Thus, if a price system works (which it usually does not), the citizens ex ante should prefer it to the vote unless they are risk positive.

My paper had the narrow goal of pointing out that no attempt had been made to compare the price system and the voting mechanism in the case where the price system is efficient. It then showed that given risk aversion, it was possible that society would prefer the price system. The weaknesses in the article were in the model—particularly in specifying how to embed it in a dynamic context and how to give a mixed strategy (concealed or declared) a more plausible interpretation. My model was adequate for the type of counter-example I was constructing. I would have been happier had the author “bought” far less of my model and tackled the problem of improving its sophistication for a more constructive purpose.