Voting Systems and Economic Impacts

A situation where making a decision that benefits one person comes at the expense of another, with no way to compensate the loser for their loss. For example, building a new highway could benefit commuters but harm those whose houses are demolished.

This criterion allows for decisions that benefit a group even if it harms a smaller group, as long as the gains to the winners outweigh the losses to the losers and the winners could hypothetically compensate the losers. However, compensation isn't actually required. Example: Building a new airport benefits travellers but harms nearby residents due to noise - if the benefits to travellers outweigh the harm to residents, the project might be deemed acceptable by this criterion.

A mathematical function that represents the preferences of a society, ranking different possible states of the economy based on the welfare of its individual members. These functions aim to aggregate individual preferences into a single social preference ranking, using utility levels of different individuals as input.

The measurement of an individual's satisfaction or well-being. Difficult to measure directly, often measured by economic indicators like income, consumption, or subjective happiness scales.

The ability to compare the utility levels of different individuals. It's a complex issue of fairness, as it raises questions about how to weigh the happiness of different people.

Different ways to design a SWF to reflect different values and priorities. Some focus on maximizing total utility, others on equality, or other social objectives. Reflect different philosophical views on what a just and good society should be.

A decision-making framework that assumes people act rationally and try to maximize their expected utility by considering possible outcomes and their likelihood. It's often used to analyze decisions under uncertainty.

A thought experiment where individuals are asked to make decisions about society's organization from behind a veil of ignorance, meaning they don't know their own position, social status, or any personal characteristics. This helps promote fairness by forcing decision-makers to consider the needs of all individuals, regardless of their own situation.

A social welfare function (SWF) that combines elements of both Rawlsian and utilitarian principles. It allows for varying degrees of inequality, with a higher 'y' weight indicating a greater emphasis on Rawlsian fairness.

A way of measuring the preferences of an individual, taking into account how much risk they are willing to take. Constant relative risk aversion means that the degree of risk aversion changes proportionally to income or wealth.

The idea that individuals in a collective should maximize their expected utility, similar to maximizing the level of happiness or well-being for society as a whole.

A thought experiment suggesting that individuals are more likely to prefer living in a country with a higher certainty equivalent income (SE). This means they're more comfortable with a known, but slightly lower, income than a potentially higher, but uncertain, one.

A framework based on the idea of a social contract where individuals voluntarily sacrifice certain freedoms in exchange for safety and order provided by the government.

A situation where a decision-maker is uncertain about both their future social position and their risk preference.

The debate concerning whether individual risk preferences should influence social policy. Critics argue that social standing, which can influence risk aversion, should be considered.

A voting system where the candidate with the most votes within a district wins, regardless of whether they secure a majority.

A voting system where the winning candidate needs at least 50% + 1 vote to win. If no candidate reaches this threshold, a runoff election is often held between the top two contenders.

A voting system where seats in a legislative body are allocated proportionally to the votes received by different parties. This ensures representation based on the overall popular vote.

Public goods are goods or services that are non-excludable and non-rivalrous, meaning that it is difficult to prevent people from using them (non-excludable) and one person's use of the good doesn't diminish its availability for others (non-rivalrous). Examples include national defense, clean air, and public parks.

Adam Smith argued that the government should take on the role of providing certain public goods, which the private sector would not provide due to a lack of profitability. These include internal security, foreign defense, and the provision of public goods like infrastructure. The government can generate revenue through taxation to fund these essential services.

In a situation where different groups have competing preferences, a proposal that benefits one group at the expense of another may fail to achieve a consensus if the required majority is too high, leading to decision delays or even the absence of any decision.

In the context of decision-making, it's the idea that requiring a high majority might lead to excessive delays, as finding a compromise that satisfies a large portion of the group becomes challenging.

The concept that although a proposal might require a majority vote to pass, a subsequent proposal that reverses the initial decision might also require a majority vote, leading to potential back-and-forth and instability in decision-making.

A voting system where only 50% plus one vote is needed to adopt a proposal, which is deemed more efficient because any subsequent attempt to overturn that decision would require more than 50% support, making it difficult to reverse.

The idea that individuals might not vote even if they have preferences, as the likelihood of their single vote being decisive is extremely low, leading to a lack of motivation.

People may vote even if their chance of impacting the result is minimal, not for pure rational reasons, but for personal satisfaction or expressing their opinions. This can be seen as a form of emotional or symbolic action.

In a situation with three or more alternatives, a voting cycle can occur where no clear winner emerges. This happens when the alternative favored by a majority against one option wins against another, but then loses to the original option, and the cycle repeats.

In a one-dimensional system, the median voter's preference is likely to prevail in a pairwise voting system under majority rule, as they can form a coalition with either side to defeat the other.

A situation where smaller players in a collective benefit from the actions of larger players without contributing equally, often leading to underprovision of the public good.

A situation where the benefits or costs of an action by an individual or group are not fully reflected in the market price, impacting others who are not involved in the transaction.

A type of externality where the effect is transmitted through the market system, for example, an increase in demand for a good leading to higher prices for other buyers.

A type of externality where the effect is not reflected in market prices, such as pollution from a factory affecting nearby residents.

The idea that when resources are available for everyone to use but no one is responsible for their maintenance, they tend to be overused and depleted.

A situation where players in a collective have a greater incentive to contribute to a public good if the group is smaller, as the per capita benefits are higher.

A situation where resources are allocated based on who arrives first, leading to overutilization and potential depletion.

A situation where players are more likely to save a resource for future use if they believe others are also saving it, but if others are using it up, they may feel compelled to use it up as well.

A government payment to encourage firms to reduce pollution, effectively buying the right to pollute from the firm.

The phenomenon where a government subsidy for reducing pollution can backfire, leading to an increase in the number of polluters. This occurs when potential polluters can easily manipulate their pollution levels to benefit from the subsidy.

A system where the government sets a limit on total pollution and then distributes permits that allow companies to pollute up to a certain amount. These permits can then be traded, creating a market for pollution rights.

An approach to managing pollution where companies are held legally responsible for the damage caused by their pollution. It is often used for high-impact, low-probability events.

A potential flaw of tradable permits, where a reduction in pollution by one company incentivizes others to increase their emissions, leading to a net increase overall.

A hypothesis suggesting that green taxes can have a double dividend: reduce pollution and also generate revenue that can be used to benefit producers or the economy.

The marginal cost of pollution abatement, which represents the additional cost of reducing pollution by one unit. Companies with high MAC have a high incentive to reduce pollution.

The total amount of pollution permitted by the government in a tradable permit system. This is a critical factor influencing the market for pollution rights.