Working Paper: CEPR ID: DP5013
Authors: Hans Gersbach
Abstract: We develop democratic mechanisms where individual utilities are not observable by other people at the legislative stage. We show that an appropriate combination of three rules can yield efficient provision of public projects: first, flexible and double majority rules where the size of the majority depends on the proposal and verifiable parameters and taxed and non-taxed individuals need to support the proposal; second, flexible agenda costs where the agenda-setter has to pay a certain amount of money if his proposal does not generate enough supporting votes; third, a ban on subsidies. We provide a rationale why double majority rules are used in practice. We also show that higher degrees of uncertainty about project parameters can make it easier to achieve first-best allocations and that universal equal treatment with regard to taxation is undesirable.
Keywords: democratic constitutions; double majority rules; flexible agenda cost rules; unobservable utilities
JEL Codes: D62; D72; H40
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| flexible and double majority rules, along with a ban on subsidies and flexible agenda costs (D72) | efficient provision of public projects (H43) |
| without constraints (C29) | agenda setters could impose excessive taxation on project losers (H23) |
| higher degrees of uncertainty about project parameters (D80) | facilitate achieving first-best allocations (D61) |
| ambiguity allows for the design of rules that deter project losers from agenda setting (D72) | achieving socially desirable outcomes (O35) |
| proposed constitutional rules can induce agenda setters to propose socially desirable projects (D72) | socially desirable outcomes (D91) |