The Calculus of Consent: Logical Foundations of Constitutional Democracy

The Calculus of Consent: Logical Foundations of Constitutional Democracy was written by James M. Buchanon and Gordon Tullock in 1962. It has been republished by Liberty Fund in The Selected Works of Gordon Tullock, Vol. 2 and The Selected Works of James M. Buchanon, Vol. 3 much more recently.

The authors introduce a methodologically-individualistic concept of what a state ought to be.

• Individuals have different interests for reasons other than ignorance.

• Individuals make rational decisions about consent based on expected costs and benefits.

• This concept can only form predictions about the structural characteristics of group choice, nothing more.

The authors are specifically interested in studying what group decisions result in public/collective action, as opposed to leaving decisions for individual action. Furthermore, how such group decisions are made.

• The fact that a meaningful portion of total economic activity is governed by the state, and the fact that special interest groups believe that they can gain benefits from the state, both suggest that such a theory is necessary.
  • There must be some economic decision making.
  • Pork barrel politics is not an error of the constitutional design, it is normal behavior within it.

Society doesn't realistically form constitutional rules from nothing. Most societies have standing rules and norms, if not a standing constitution. Not an issue; a state is merely an artifact of decision making. It can be changed, and it ought to be changed to improve collective welfare.

Consent

What is meant by consent?

• Assume that constitutional rules are founded with unanimity.

• Assume that individuals make a rational decision about consenting to constitutional rules.

  • In order to assess this, we need a common understanding of how a change in constitutional rules leads to an expected change in group decisions, so that individuals can possibly make a rational decision.

Public goods and services are complicated to rationalize.

• A law of public demand must be assumed. There is fundamentally just one transaction in the market, whereas private economic activity can be studied to validate a law of demand.

• Group decision making imposes uncertainty, loss of control, loss of direct consequences, etc. These all weaken an individual's ability to make rational decisions.
  • Mitigating factors: real societies are a continuous repeating game. Individuals have the status quo as a reference point.
• Even if individuals can predict what group decision will be made on a topic, can they predict the topics that will be subject to group decisions?

There is an expected cost to participating in group decision making. Costs of interdependence are composed of...

• decision making costs, and

• externality costs imposed by a group decision that isn't optimal for an individual.

The authors model group decisions using a cost approach and a gains approach, to the same end.

In the cost approach, the goal of individuals is to remove externality costs.

• If a negative externality is significant, action will be taken. Will it be individual or collective?
  • If there were no decision making costs, externalities would be settled by coordinated individuals.
    • No reason to risk an inoptimal group decision, or no reason to continue participating after an inoptimal group decision is reached.
  • As decision making costs increase, collective action becomes the more efficient option.

  • A general theory is formulated about this cost approach in terms of g (expected costs of collective action), a (of individual action), and b (of individual coordinated action). This theory should be testable and falsifiable.

In the gains approach, the goal of individuals is to maximize net gains.

• This relies on expected benefits from group decision making, and comparing the marginal expected benefits to the marginal decision making costs.

Applying this to constitutional rules: The most important constitutional rule is how many people are needed to make a group decision? The number of people needed is n, somewhere between 1 and the total population N.

An inverse relationship exists between the expected externality cost component of the costs of interdependence and the n.

• If unanimity is the constitutional rule (n=N), an individual would veto all personally inoptimal decisions--the expected cost is 0.

• If every individual were authorized to make group decisions (one form of n=1), there would be some expected cost imposed by all other individuals' decisions.

• If absolute dictatorship is the constitutional rule (another form of n=1), the expected cost would be higher.

  • The dictator expects no costs, while all other individuals expect some. But it likely would not be as high as the 'every single individual' constitutional rule.

A correlated relationship exists between the expected decision making cost component of the costs of interdependence and n.

• If unanimity is the constitutional rule, all individuals must be bargained with. In most cases they must be convinced to take less public goods or services than they would prefer.

• In any scheme where n=1, that individual assumes all decision making costs.

Individuals form a rational preference for constitutional rules based on the minimization of these cost components in terms of n. Subject to the limitations on individual rationality for group decisions listed above, if all individuals expect that they balance out 'losses' with 'wins', they will consent to a constitutional rule. The society's optimal constitutional rules can be determined on the basis of unanimous consent.

• In reality, the interaction doesn't happen like this. Individuals are born into a society with an existing set of rules, but also with opportunities to propose and consider rule changes.
  • Individuals should still consent to the standing constitutional rules if they expect to balance out 'losses' with 'wins'.
  • Individuals should still have a rational opinion about what rule changes would be better than the status quo.
    • From any starting point, assuming that group decisions and individual preferences are independent, rule changes should proceed towards a societal optimality.
      • Social cleavages make this prediction less useful. A majority group with consistent interests can (and will) impose rules and group decisions upon a minority group.

An important note: the authors never needed an assumption about (personally or societally) rational decisions being Pareto optimal.

A side note: the majority voting rule (n=N/2) is arbitrary, just one out of many possibilities, and we likely have over-fixated on that threshold.

competition is the reason we don't expect bargaining in economic markets.as in, bluffing and posturing over incentives. rational actors working with marginal costs and marginal gains would not invest their resources into behavior that reduces overall profit. or put more simply, bargaining would introduce a cost on at least one actor who would face reduced incentive to participate in any deal, and over repeated rounds of bargaining we expect that either true incentives would be revealed or the damaged actors would abandon the deal. and given that, we expect the damaging actors to eventually abandon bargaining positions. political/constitutional decisions are rarely like this. there is not typically an option to 'walk away'. actors then may be forced into numerous rounds of bargaining, creating significant costs. and the expected costs grow with the number of people whose consent is required.

if non-unanimity is allowed, bargaining costs should fall. the introduction of alternatives means that damaging actors could force damaged actors away by maintaining a bargaining position, allowing deals to made that exclude them. in summary, people may be willing to consent to non-unanimous decision making even though it will introduce an externality. social cleavages, especially in a context of social violence, may lead a society to prefer a high threshold for social decision making, so high that it is unattainable given those cleavages. this would look like representative democracy thatnis paralyzed into inaction. this is perfectly rational. by contrast, a deeply homogenous social unit may prefer a low threshold, even though higher rates of participation could be acheived at a low marginal cost, simply due to the relative similarity between people's incentives. marginal benefits of participation are simply similarly low. this is also perfectly rational.

My thoughts

The authors seem to admit that this theory does not recommend a constitutional democracy for nations with social cleavages. Potentially a hypothesis that dissolving social cleavages make such consitutions more viable?

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