Referenda (voting on environmental improvements)

    Voting has a lot of appeal in democratic societies.  While this is understandable, it also has some undesirable properties in many contexts.  If all policies had the property that either B>C or C>B for each voter, there would be no problem--policies would be unanimously passed or rejected, and properly so.  But, suppose that benefits and costs are unequally distributed among voters; in particular, suppose that a small minority have very strong preferences for an environmental improvement (benefits far exceed costs), while a majority have a slight excess of costs over benefits.  In this situation, a policy having overall benefits much in excess of costs--an efficient policy from society's collective perspective--might be voted down with a resounding majority against it.  The Problem: voting fails to reflect the intensity of wants of the individual voter.  For example, I like to decide the midterm date on the basis of a classroom vote.  This is probably not smart, from the perspective of teaching evaluations--I'd be better off to just put a date in on the syllabus and go with it.  But, the voting teaches an important lesson--at least to those that lose!  It is quite possible (though not necessarily to be expected) that a test date with a substantial majority might not be the socially-optimal test date--those preferring it might care only a little, while those wanting a different date might care a lot, say, having three other midterms that day.  Similarly, an environmental policy benefitting a few people greatly (they don't die, for example) might have many millions of dollars of collective benefits.  But if costs--despite perhaps being much lower than benefits--are spread broadly over society (say, higher electricity bills), the environmental policy might get voted down by a big majority.
    Another potential problem with voting is the paradox of "intransitive preferences" where the power to set the agenda determines the actual outcome.  Illustrating, suppose we have three individuals (there could be many more people of each "type") and three potential policies.  Aaron, Bob, and Cathy have the following rankings for Policies I, II, and III, where > means "preferred:"

                                                    Policy 1    Policy 2    Policy 3
                                            A        1        >        2        >        3
                                            B        2        >        3        >        1
                                            C        3        >        1        >        2

    Suppose now we do a "pairwise comparison" of policies 1 and 2--which will be preferred by majority voting?  Clearly, Aaron prefers 1 to 2, as does Cathy; hence, Policy 1 will be selected over Policy 2.  But, suppose the comparison were between Policy 2 and Policy 3--here Policy 2 has a majority preferring it to Policy 3.  Thus, Policy 1 is preferred to Policy 2 and Policy 2 is preferred to Policy 3.  So, Policy 1 should be "best," right?  Well, let's now compare Policy 1 with Policy 3 in a pairwise comparison.  Aaron likes Policy 1 better than Policy 3, but both Bob and Cathy prefer Policy 3 to Policy 1!!  Social preferences over policies can be "intransitive" in this way (transitivity is a property of the real number system, but also of rational preferences--discuss).  We have a real problem here: whoever controls the "agenda-setting process" can control the outcome in settings like this.  While one might suspect that such cases are rare, one must realize that "all the easy stuff" has already been done (everything that we all agree on--we should have a national defense, a set of laws, etc. has been done, leaving things about which there is more disagreement).  The agenda-setter, in short, can exert far more control on the outcome than we would really like in a voting democracy under some circumstances.
    A related, but more general, problem: inability to make interpersonal utility comparisons means that we can never know with any degree of confidence that a policy is "making society better off."  Arrow Impossibility Theorem.  Discuss the role of income transfers from the rich to the poor, assuming first identical preferences (marginal utilities) for income; then, when the rich (who may be rich precisely because they have such high preferences for the goods income can buy) have a higher marginal utility of income than the poor.  The beauty of the market is that (in the absence of  market imperfections) exchanges are "Pareto Efficient" (Discuss--one or more individuals are made better off, while nobody is made worse off).  But, even this is not entirely beyond criticism (equity may be viewed by many as more important than efficiency, regardless of how efficient a policy is).  Moreover, all the social policies that have B>C for everyone have already been done!  This leads to the concept of  "Kaldor Efficiency" (Discuss--those who are made better off could compensate those who are made worse off--i.e. B>C in dollars).  The Kaldor efficiency notion is what underlies benefit-cost analysis: if no group is systematically discriminated against, and, if we do large numbers of policies, always doing things with benefits greater than or equal to costs in dollars (despite the non-comparability of their meaning among individuals) society as a whole is made better off on average.