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EC9A4 Social Choice and Voting Lecture 1. Prof. Francesco Squintani f.squintani@warwick.ac.uk . Syllabus. 1. Social Preference Orders May's Theorem Arrow Impossibility Theorem (Pref. Orders) 2. Social Choice Functions Arrow Impossibility Theorem (Choice Funct.)

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ec9a4 social choice and voting lecture 1

EC9A4Social Choice and VotingLecture 1

Prof. Francesco Squintani

f.squintani@warwick.ac.uk

syllabus
Syllabus

1. Social Preference Orders

May's Theorem

Arrow Impossibility Theorem (Pref. Orders)

2. Social Choice Functions

Arrow Impossibility Theorem (Choice Funct.)

Rawlsian Theory of Justice

Arrow Theory of Justice

slide3
3. Single Peaked Preferences

Black's Theorem

Downsian Electoral Competition

4. Probabilistic Voting and Ideological Parties

5. Private Polling and Elections

Citizen Candidate Models

slide4
References
  • Jehle and Reny Ch. 6
  • MasColell et al. Ch 21
  • Lecture Notes
  • D. Bernhardt, J. Duggan and F. Squintani (2009): “The Case for Responsible Parties”, American Political Science Review, 103(4): 570-587.
slide5
D. Bernhardt, J. Duggan and F. Squintani (2009): “Private Polling in Elections and Voters’ Welfare” Journal of Economic Theory, 144(5): 2021-2056.
  • M. Osborne and A. Slivinski (1996): “A Model of Political Competition with Citizen-Candidates,” Quarterly Journal of Economics, 111(1): 65-96.
  • T. Besley and S. Coate (1997), “An Economic Model of Representative Democracy,” Quarterly Journal of Economics, 112: 85-114.
what is social choice
What is Social Choice?
  • Normative economics. What is right or wrong, fair or unfair for an economic environment.
  • Axiomatic approach. Appropriate axioms describing efficiency, and fairness are introduced. Allocations and rules are derived from axioms.
  • Beyond economics, social choice applies to politics, and sociology.
social preferences
Social Preferences

Consider a set of social alternatives X, in a society of

N individuals.

Each individual i, has preferences over X, described

by the binary relation R(i), a subset of X2.

The notation `x R(i) y’ means that individual i weakly

prefers x to y.

Strict preferences P(i) are derived from R(i):

`x P(i) y’ corresponds to `x R(i) y but not y R(i) x.’

slide8
Indifference relations I(i) are derived from R(i):

`x I(i) y’ corresponds to `x R(i) y and y R(i) x.’

The relation R(i) is complete: for any x, y in X, either `x R(i) y’ or `y R(i) x’, or both.

The relation R(i) is transitive: for any x, y, z in X,

if `x R(i) y’ and `y R(i) z’, then `x R(i) z’.

Social preference relation: a complete and transitive relation R = f (R (1), …, R(N)) over the set of alternative X, that aggregates the preferences R(i) for all i = 1,…, N, and satisfies appropriate efficiency and fairness axioms.

slide9

Example: Exchange Economy

x12

x21

I1

I2

w

x11

x22

In the exchange economy with 2 consumers, and

2 goods, x are such that + = + ,

where w is the initial endowment, and j is the good.

xj1

xj2

wj1

wj2

slide10

x12

x21

I1

I2

x

y

w

x11

x22

For individual i, `x I(i) y’ if ( , ) and ( , ) are

on the same indifference curve Ii

The relations R(i) and P(i) are described by the

contour sets of the utilities ui

x2i

x2i

y2i

y2i

slide11

x12

x21

I1

I2

x

w

x11

x22

The line of contracts describes all Pareto optimal

allocations. One possible social preference is R such

that `x P y’ if and only if x is on the line of contracts,

and y is not.

the case of two alternatives
The case of two alternatives

Suppose that there are only two alternatives:

x is the status quo, and y is the alternative.

Each individual preference R(i) is indexed as

q in {-1, 0, 1}, where 1 is a strict preference for x.

The social welfare rule is a functional

F(q(1), …, q(N)) in {-1, 0, 1}.

may s axioms
May’s Axioms

AN: The social rule F is anonymous if for every

permutation p, F(q(1), …, q(N))= F(q(p(1)),…q(p(N)))

NE: The social rule F is neutral if F(q) = - F (- q ).

PR: The rule F is positively responsive if q > q’, q = q’

and F(q’) > 0 imply that F(q) = 1.

may s theorem
May’s Theorem

A social welfare rule is majoritarian

(i.e. F(q) =1 if and only if

n+(q) =#{i: q(i) = 1} > n-(q) =#{i: q(i) = - 1} ,

F(q) =-1 if and only if n+(q) < n-(q) ,

F(q) =0 if and only if n+(q) = n-(q) ),

if and only if it is neutral, anonymous, and

positively responsive.

slide15
Proof. Clearly, majority rule satisfies the 3 axioms.

By anonimity, F(q) = G(n+(q), n-(q)).

If n+(q) = n-(q), then n+(-q) = n-(-q), and so:

F(q)= G(n+(q), n-(q))= G(n+(-q), n-(-q))=

=F(-q)=-F(q), by NE.

This implies that F(q)=0.

If n+(q) > n-(q), pick q’ with q’<q and n+(q’) = n-(q’),

Because F(q’) = 0, by PR, it follows that F(q) = 1.

When n+(q) < n-(q), it follows that n+(-q) > n-(-q),

hence F(-q) = 1 and by NE, F(q) = -1.

transitivity
Transitivity

Transitivity is apparently a sound axiom.

But it fails for the majority voting rule.

Suppose that X={x, y, z}, and `x P(1) y P(1) z’,

`y P(2) z P(2) x’ and `z P(3) x P(3) y’.

Aggregating preferences by the majority voting rule yields `x P y’, `y P z’, and `z P x’.

This is called a Condorcet cycle.

arrow s axioms
Arrow’s Axioms

U. Unrestricted Domain. The domain of f must include all possible (R(1), …, R(n)) over X.

WP. Weak Pareto Principle. For any x, y in X,

if `x P(i) y’ for all i, then `x P y’.

ND. Non-Dictatorship. There is no individual i such that for all x,y, if `x P(i) y’ i, then `x P y’, regardless of the relations R(j), for j other than i.

slide18

IIA. Independence of Irrelevant Alternatives.

Let R = f(R(1), …, R(N)), and R’ = f(R’(1),…, R’(N)).

For any x,y, if every individual i ranks x and y in the

same way under R(i) and R’(i), then the ranking of

x and y must be the same under R and R’.

This axiom requires some comments. In some sense,

it requires that each comparison can be taken without

considering the other alternatives at play.

The axiom fails in some very reasonable voting rules.

borda count
Borda Count

Suppose that X is a finite set.

Let Bi(x) = #{y : x P(i) y}.

The Borda rule is: x R y if and only if

B1(x) + …+ BN(x) > B1(y) + …+ BN(y).

This rule does not satisfy IIA.

Suppose 2 agents and {x,y,z} alternatives.

x P(1) z P(1) y, y P(2) x P(2) z yields x P y

x P*(1) y P*(1) z, y P*(2) z P*(2) x yields y P x

slide20

Arrow Impossibility Theorem

Theorem If there are at least 3 allocations in X, then the axioms of Unrestricted Domain, Weak Pareto and Independence of Irrelevant Alternatives imply the existence of a dictator.

Corollary There is no social welfare function f that satisfies all the Arrow axioms for the aggregation of individual preferences.

slide21
Proof (Geanakoplos 1996).

Step 1. Consider any social state c. Suppose that

`x P(i) c’ for any x other than c, and for any i.

By Weak Pareto, it must be that `x P c’ for all such x.

Step 2. In order, move c to the top of the ranking of

1, than of 2, all the way to n. Index these orders

as (P1(1),…, P1(N)), … (PN(1),…, PN(N)).

By WP, as `c PN(i) x’ for all i and x other than c,

it must be that `c PN x’ for all x other than c.

The allocation c is at the top of the ranking.

slide22
Because c is at the top of the ranking P after raising it

to the top in all individual i’ s ranking P(i), there must

be an individual n such that c raises in P, after raising

c to the top in all rankings P(i) for i smaller or equal

to n. We let this ranking be (Pn(1),… , Pn(N))

We now show that c is raised to the top of Pn for

the ranking (Pn(1), …, Pn(N)), i.e. when raising c to

the top of P(i), for all i < n.

slide23
By contradiction, say that `a Pn c’ and `c Pn b.’

Because c is at the top of Pn(i) for i < n, and at the

bottom of Pn(i) for i > n, we can change all

i‘s preferences to P*(i) so that `b P*(i) a’.

By WP, `b P* a’.

By IIA, `a P* c’ and `c P* b.’

By transitivity `a P* b’, which is a contradiction.

This concludes that c is at the top of Pn, i.e. when

raising c to the top of P(i) for all individuals i < n.

slide24
Step 3. Consider any a,b different from c. Change the

preferences Pn to P* such that `a P*(n) c P*(n) b’,

and for any other i, a and b are ranked in any way, as

long as the ranking of c (either bottom or top), did

not change.

Compare Pn+1 to P*: by IIA, `a P* c’.

Compare Pn-1 to P*: by IIA, `c P* b’.

By transitivity, `a P* b’, for all a, b other than c.

Because a,b are arbitrary, we have: if `a P*(n) b’, then

`a P* b’. n is a dictator for all a, b other than c.

slide25
Step 4. Repeat all previous steps with state a,

playing the role of c.

Because, again, it is the ranking Pn of n which

determines whether d is at the top or at the bottom

of the social ranking, we can reapply step 3.

Again, we have: if `c P*(n) b’, then `c P* b’.

n is a dictator for all c, b other than a.

Because n is a dictator for all a, b other than c, and

n is a dictator for all c, b other than a,

we obtain that n is a dictator for all states.

a diagrammatic proof
A diagrammatic proof

We assume that preferences are continuous.

Continuity. For any i, x, the sets {y: y R(i) x} and

{y: x R(i) y} are closed.

Complete, transitive and continuous preferences R(i)

can be represented as continuous utility functions ui

slide27
We aggregate the utility functions u into a social

welfare function V (x) = f (u1(x), …, uN(x)).

PI. Pareto indifference. If ui(x)= ui(y), for all i, then V(x)=V(y).

If V satisfies U, IIA, and P, then there is a

continuous function W such that:

V(x) > V(y) if and only if W(u(x)) > W(u(y)).

The welfare function depends only on the utility

ranking, not on how the ranking comes about.

slide28
The axioms of Arrow’s theorem require that

the utility is an ordinal concept (OS) and that utility is

interpersonally noncomparable (NC).

If ui represents R(i), then so does any increasing

transformation vi (ui). All increasing transformations

vi must be allowed, independently across i.

The function W aggregates the preferences

(ui)i=1 if and only if the function g(W) aggregates

the preferences (vi(ui))i=1, where g is an increasing

transformation.

slide29
Suppose that N =2

(when N>2 the analysis is a simple extension)

Pick an arbitrary utility vector u.

u2

II

I

u

III

IV

u1

slide30
By weak Pareto, W(u) > W(w) for all utility indexes

w in III, and W(w)>W(u) for all utility indexes w in I.

u2

II

I

u

III

IV

u1

slide31
Suppose that W (u) > W (w) for some w in II.

Applying the transformation v1 (w1) = w*1 and

v2 (w2) = w*2, the OS/NC principle implies that

W (u) > W (w*).

u2

w*

II

I

w

u

III

IV

u1

slide32
This concludes that for all w in II, either

W (u)<W (w), W (u) = W (w), or W (u) > W (w).

It cannot be that W (u) = W (w) because transitivity

would imply W (w*) = W (w).

u2

w*

II

I

w

u

III

IV

u1

slide33
Suppose that W (u) > W (w).

In particular, W (u) > W (u1-1, u2+1).

Consider the transform v1(u1) = u1+1, v2(u2) = u1-1.

By the OS/NC principle,

W (v(u)) > W (v1 (u1-1), v2(u2+1)) = W (u).

u2

w

II

I

u

v(w)

v(u)

III

IV

u1

slide34
By repeating the step of quadrant II, the transform

v1 (w1) = w*1 and v2 (w2) = w*2, the OS/NC

principle implies W (u) < W (w*) for all w* in IV.

u2

II

I

u

w*

v(u)

III

IV

u1

slide35
The indifference curves are either horizontal or

vertical. Hence there must be a dictator.

In the figure, agent 1 is the dictator.

u2

II

I

u

III

IV

u1

conclusion
Conclusion

We have defined the general set up of the social choice problem.

We have shown that majority voting is particularly valuable to choose between two alternatives.

We have proved Arrow’s theorem:

The only transitive complete social rule satisfying weak Pareto, IIA and unrestricted domain is a dictatorial rule.

preview next lecture
Preview next lecture

We will extend Arrow’ theorem to social choice

functions.

We will introduce the possibility of interpersonal

utility comparisons.

We will axiomatize the Rawlsian Theory of Justice

and the Arrowian Theory of Justice