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.
Decision Making Costs
Competition is the reason we don't expect bargaining in economic markets.
- As in, bluffing and posturing over private preferences.
- Rational actors working with marginal costs and marginal gains would not invest resources into behavior that reduces overall profit.
Bargaining imposes a cost on at least one actor, reducing their incentive to participate in any transaction. Over repeated rounds of bargaining either true incentives would be revealed or the damaged actors would abandon the deal. To avoid the latter, the damaging actors will eventually abandon bargaining positions.
Political decisions are rarely like this. Typically there is no option to 'walk away'. Actors are forced into repeated bargaining, creating significant decision making costs. The expected costs grow with the number of people involved.
There is an alternative: collective action based on non-unanimous consent.
Consent to Group Decision Making
Individual decisions about consenting to group decision making will revolve on rational expectations of the outcomes. But public goods and services are difficult 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 to form expectations.
- 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?
Given an expectation of the outcome, there is also an expected cost. Group decisions that are suboptimal for the individual impose an externality cost on the 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 (i.e. group decision)?
Coordinated individual action and collective action based on unanimity are fairly similar. Compared to coordination, a group decision is made based on expectations, may have been bargained over, and is binding.
- If there were no decision making costs, externalities would be tackled by coordinated individuals always. No reason to risk a suboptimal group decision, or no reason to continue participating after an inoptimal group decision is reached.
- As decision making costs increase, they may exceed the expected cost from group decisions, making collective action rationally preferable.
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.
By either approach, the outcome of a group decision is not expected to be optimal. Individuals can still rationally consent to a group decision given decision making costs, and there is no requirement of Pareto optimality.
Consent to Constitutional Rules
Constitutional rules are the most fundamental group decisions that determine how group decisions can be made. They determine the costs of interdependence, which itself is composed of decision making costs and externality costs imposed by inoptimal group decisions.
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. There is no expected cost.
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 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.
Individuals can rationally consent to constitutional rules other than unanimity.
Majority voting (n=N/2) is arbitrary, just one out of many possibilities, and we likely have over-fixated on that threshold.
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.
- Especially in a context of social violence, social cleavages may lead a society to prefer a high threshold for group decision making.
- This may look like representative democracy that is paralyzed into inaction.
By contrast, a deeply homogenous society may prefer a low threshold. Because individuals' incentives are so similar, even though costs of interdependence are minimal, individuals also stand to gain minimally from direct participation.
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?