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How the Rational Voter Assumption Derails Promising Research

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Here's the beginning of the abstract from Di Tella and MacCulloch's "Why Doesn't Capitalism Flow to Poor Countries?" (non-gated version here):

We find anecdotal evidence suggesting that governments in poor countries have a more left wing rhetoric than those in OECD countries. Thus, it appears that capitalist rhetoric doesn't flow to poor countries. A possible explanation is that corruption, which is more widespread in poor countries, reduces more the electoral appeal of capitalism than that of socialism. The empirical pattern of beliefs within countries is consistent with this explanation: people who perceive corruption to be high in their country are also more likely to lean left ideologically (and to declare support for a more intrusive government in economic matters).

So far, Di Tella and MacCulloch seems eerily similar to a passage in Nobel-prize-worthy Anne Krueger's "The Political Economy of the Rent-Seeking Society," published over three decades ago:

If the market mechanism is suspect, the inevitable temptation is to resort to greater and greater intervention, thereby increasing the amount of economic activity devoted to rent seeking. As such, a political "vicious circle" may develop. People perceive that the market mechanism does not function in a way compatible with socially approved goals because of competitive rent seeking. A political consensus therefore emerges to intervene further in the market, rent seeking increases, and further intervention results.
There is, however, a key difference: Anne Krueger sees no need to reconcile her story with the rational voter assumption. Di Tella and MacCulloch do, as the remainder of their abstract explains:
Finally, we present a model explaining the corruption-left connection. It exploits the fact that an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat. After observing corruption, voters who care about fairness react by increasing taxes and moving left. There is a negative ideological externality since the existence of corrupt entrepreneurs hurts good entrepreneurs by reducing the electoral appeal of capitalism.
Di Tella and MacCulloch present some fascinating evidence. My suspicion, however, is that, like most modern political economists, they would be embarassed to give the kind of explanation that someone like me favors:
To a large degree, poor countries remain poor because their citizens suffer from unusually severe anti-market bias. Not only do they deeply underestimate the social benefits of the market mechanism; they perversely use corruption, a side effect of anti-market policies, as an argument against markets.
To avoid this embarassment, Di Tella and MacCulloch have to construct a model where the anti-market orientation of the Third World makes sense, beginning with a premise - "an act of corruption is more revealing about the fairness type of a rich capitalist than of a poor bureaucrat" - that you need graduate training in economics to understand.

Don't get me wrong - I'm glad that Di Tella and MacCulloch wrote this paper. It's well-written, has a lot of neat material, and addresses important questions. But as long as political economists live in the shadow of the rational voter assumption, they'll have to keep ignoring theories that are simple and plausible, and pushing theories that are convoluted and forced.

HT: Tyler.

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TRACKBACKS (2 to date)
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The author at A Stitch in Haste in a related article titled Does Crony Capitalism Inspire the Third World's Radical Left? writes:
    A comment I left at another blog:
    So voters in poor countries allow themselves to see the effects of crony capitalism in, e.g., Mexico or Russia,...
    [Tracked on July 8, 2007 10:48 PM]
The author at Sepia Mutiny in a related article titled Corruption and Country Politics... writes:
    I’m a big fan of Bryan Caplan & Arnold Kling over at EconLog and in particular this blogpost. The post analyzes a paper from Rafael Di Tella (HBS) and Robert MacCulloch (Princeton) which models the relationship between a country’s perceived... [Tracked on July 9, 2007 10:50 AM]
COMMENTS (3 to date)
John Smith writes:

New blog reader. but the thing i dun get about your book is is that whether this irrational voter concept is supposed to be something new? i thought that it was reasonably well-known? is it that you are getting the credit for explaining and defining a concept which is not new but has never been explained and defined? why do you write as if the concept is new? or am i wrong and this concept is unique?

Kautilya writes:

"To a large degree, poor countries remain poor because their citizens suffer from unusually severe anti-market bias."

I seriously dobt that the overwhelming majority of those [poor country] citizens, who are illiterate, even remotely, understand the difference between pro and anti market policies.

Tom West writes:

The voters in those countries may not be irrational at all. The separation of economics from rulership is a modern one and not all that common in many of these countries where corruption is most common. Reduce the influence of government in any given sector, and you simply increase the influence of private concerns.

At least the government is theoretically working for you.

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