EXAMPLES FROM BAILEY’S CONSTITUTION

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?

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.

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.

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.

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