This is a further discussion of examples, largely drawn from Chapter 4 of Bailey. baileymoreexamples.html

The material I will discuss is contained in pages 162-82, beginning with section 4.4 – Could It Be Subverted? baileymoreexamples.html - 4.4*


The latter sections of Chapter 4, beginning in 4.4, provide an interesting discussion of where and how the system could break down. Is it susceptible, for example, to Rent Seeking forces? To answer this question, Bailey contrasts minor failures (such as possible continuing instances of fraud and corruption in the monitoring of government performance) with major failures to provide safeguards against Rent Seeking. He defines a major failure as a successful effort to induce government to spend money wastefully ‘to benefit an organized group of voters at the expense of other voters, followed by another successful effort, and so on, so that the intended structure of the constitution breaks down" … Is there a crack in the armor (such that the organized groups) could succeed?

In this context, as elsewhere throughout the book, Bailey provides interesting examples of how such an apparatus would work to forestall such behavior. On pages 163-64, he provides an interesting examination of the particulars – in this case that of an organized group purporting to represent the elderly mounting a campaign to increase medicare and social security at the expense of other (younger) groups in the population. baileymoreexamples.html - EXAMPLE(1) .

Another example relates to the operation of conspiracies when the preferences of the population are largely nonmaterial and where the outcomes are uninsurable. Under such circumstances, the system could be susceptible to conspiracies. Bailey provides an interesting discussion on pages 165-66 in the context of an example from Margolis. Bailey notes that while such conspiracies are feasible, they assume rather one-sided behavior on the part of participants to "spend a penny" of VCG tax to move outcomes in their preferred direction and that there are checks that can be built into the constitutional apparatus (as he has done) so that such conspiracies or quasi-conspiratorial behavior would have very little effect in practice. Here Bailey presents an example built upon Margolis’ well-known "spend a penny" example. baileymoreexamples.html - EXAMPLE(2)

Bailey also refers here to the discussion of the "Herd Instinct" in the Appendix to Chapter 2 -- pages 61-63. baileymoreexamples.html - A3.

baileymoreexamples.html - 4.5* (Is It Overly Specific?)


baileymoreexamples.html - 4.6* (The Payoff In More Concrete Terms) – EXAMPLES(3-6)

Here Bailey presents a set of interesting examples illustrating the operation of his Constitution’s proposed rules, including the interaction of the VCG mechanism and Thompson insurance.

He begins with a localized example – a group of wealthy yacht owners who are driven by the incentive structure towards a sound plan of marginal cost user fees that would bear heaviest on those owners.

He then extends this to several large-scale national level examples: First, in Example 4), he takes up a multipurpose project to dam a river whose benefits can be directly attributed to property owners and where there would be little consumer interest in the project. The effects of the project do not disturb relative prices for such goods as water or electricity and its only effects besides its direct financial consequences are direct amenities that compete with recreational opportunities of easily measured value. In the context of this example, In a manner similar to the yacht basin example, Bailey points out how the Lindahl taxes generated by the rules would fall on the direct beneficiaries through direct pricing of services to consumers as well as farmers (enjoying land value increases) and property owners benefiting from flood control and recreational uses.

He then contrasts this example with another (Example 5) that differs sharply in that it involves direct utility of a symbolic activity about which people may feel strongly and for which there is no market counterpart. (Link goes here).

In Example 6, he presents the choice between a military draft and an all-volunteer armed force, which has elements of both the two previous cases.


baileymoreexamples.html - 4.7* (The Perspective of the Voting Family)

Having discussed the philosophical aspect of applying market simulation to government decisions, Bailey then considers two examples of how a referendum works out from the perspective of representative families in a small town.

EXAMPLE(7) considers an up-or-down vote on a budget item and then EXAMPLE(8) considers a budget that can be approved anywhere in a range.


baileymoreexamples.html - 4.8* (Some Further Notes On Incentives)

Here are examples of potential problems with the procedures and Bailey’s solutions also illustrate his path-breaking efforts to deal with problems of imbalances resulting from the operation of the VCG taxes and Thompson insurance.

EXAMPLES(9-10) ) builds upon EXAMPLE(7) where the decision about high-tech police communications in the town of Freemonia raises issues about incentives affected by the disposition of surpluses or dealing with a deficit in the insurance account.



baileymoreexamples.html - 4.9* (Inconsistencies)

EXAMPLE 11 recognizes inconsistencies – for example the various ways that one declaration by a voter could contradict another declaration.


baileymoreexamples.html - 4.10* (Conclusions)



baileymoreexamples.html - A2.1* (Altruism and Public Spiritedness)



baileymoreexamples.html - A2.3* (Altruism, Public Goods and Willingness to Pay).







Is There A Better Way? Baileybetterway.htm