Elster (2000) on institutional solutions for procrastination-prone political institutions

Elster does some interesting speculating in Ulysses Unbound (p. 143) about how delay in the implementation of rules may help political institutions to overcome time inconsistency. In this post I flesh out and extend his ideas a bit.

Suppose that a legislature’s preferences were such that it wanted balanced budgets in the future but not now. From the perspective of year 0, the legislature would like to be able to run a deficit in year 0 and year 1 but not after that; from the perspective of year 1, however, it would like to run a deficit in year 1 and year 2 but not after that. Like Augustine, the legislature wants chastity — but not yet. (One reason for this tendency to procrastinate might be that legislators benefit while in office from kickbacks on government contracts, and the median legislator expects to be in office for two more years.)

The solution Elster suggests (based apparently on work by Tabellini and Alesina from 1994) is to have a rule-making process by which any balanced-budget rule — or modification to that rule — can only take effect after two years. Under that process, the current legislature would pass a balanced budget rule, knowing that it will not constrain the legislature in the near future; a year later, the legislature would want to pass a new law delaying the original law by one year (because legislators anticipate the rule to hurt them when it goes into effect in the next year), but given that any such change would take effect after _two_ years, the legislature chooses to stick with the balanced budget rule.

Elster mentions two kinds of institutional delay that might make this possible: one is delay required to pass an amendment after it is first proposed (delay between proposal and adoption), which is a feature of a number of constitutions (Elster mentions Norway, Sweden, France, Bulgaria, and Finland); the other is delay to implement an amendment once passed. He does not make very clear how these interact, but after thinking about it for a few minutes here’s how it seems to me. In the case of a legislature that can’t get around to balancing its budget (like the one above), two years of the second kind of delay (implementation delay) is necessary to induce the legislature to pass the balanced budget rule; two years of any combination of the first and second kinds of delay (adoption and implementation delay) is sufficient to prevent the legislature from revoking the rule. For example, if the constitution requires two time periods between proposal and passage, with no delay for implementation, then the legislature would never propose an amendment revoking the balanced budget rule, knowing that by doing so it would only be making deficits possible in the future, when it actually wants a balanced budget. But without at least two years of delay for implementation, the rule would not be passed in the first place: without implementation delay, the legislature would choose not to pass the balanced budget rule no matter when it finally comes up to a vote, no matter how long the adoption delay. The most straightforward solution is thus to have two years of delay between passage of any rule (or amendment) and implementation.

Elster (2000) on reasons for self-binding

In Ulysses Unbound (2000), Elster considers situations where an actor would benefit from “self-binding” (constraining one’s own behavior) and devices that are used to accomplish this. In other words, the topic is commitment problems and commitment devices — an important theme in political science research over the past couple of decades.

Before I get to the more political aspects of Elster’s work, I want to explicate his discussion of reasons for self-binding, which helped me to see political commitment problems in a somewhat broader perspective.

In another blog post, I’ve talked about the idea that emotions can provide the corrective to rational self-interest: they impose costs and benefits that make otherwise non-credible threats and promises credible. In most cases, however, the passions are the enemy of self-interest, or at least one conception of self-interest. By passions, Elster refers to “emotions proper” (like anger, shame, fear) but also “states” such as drunkenness, sexual desire, or cravings for addictive drugs. The idea here is that these passions can take over and dominate our behavior in self-destructive ways. The clearest example is “blind anger” that leads someone to lash out in ways that he or she will certainly later regret. The discussion here focuses on clarifying the different ways in which passions can lead to self-destructive behavior, and corresponding attempts to “pre-commit” i.e. take actions that will minimize the self-destructive behavior. For example, if the passion is not too strong, it may be sufficient to take measures that will make the self-destructive behavior more costly, such as bringing one’s wife to a party to prevent oneself from getting too drunk or flirting with coworkers. If the passion is so strong that one practically ignores all other considerations and will act self-destructively no matter the cost, then one may need to take steps to avoid the passion entirely, such as not going to the office party. In I.7 Elster addresses these issues in the context of addiction, which is a particular form of passion (leading to self-destruction), in response to which addicts have developed various commitment strategies, with varying success.

Another key commitment problem discussed in Ulysses Unbound is the time inconsistency produced by hyperbolic discounting. The basic idea here is that actors may discount future payoffs in a way that leads to inconsistent action over time: given the choice between a big payoff in two years and an even bigger one in three years, I may prefer to wait longer for the bigger payoff when I think about it today, but not when I reconsider in a year. (This kind of inconsistency, which apparently helps to explain procrastination and suboptimal saving behavior, is ruled out by the standard exponential discounting but is consistent with hyperbolic discounting.) This creates a conflict within the self: today’s self wants to constrain tomorrow’s self. Although Elster does not emphasize this point, the intertemporal conflict created by hyperbolic discounting is clearly analogous to the conflict caused by passions: discounting-based time inconsistency can be thought of, it seems, as a kind of predictable passion that strikes when payoffs become more immediate.

The last reason for pre-commitment Elster considers is anticipated preference change. The idea is that one can anticipate that one’s preferences will change with time, and that one may want to guard oneself against this happening. In the Russian nobleman example provided (and drawn from Derek Parfit), this happens because the current self feels at odds with the anticipated future self: the politically radical young self anticipates that he will become more conservative in the future, so he may want to fight the future self by e.g. giving his resources to radical political causes before his future self can give those resources to conservative political causes. A slightly different phenomenon is highlighted by the Amish and other cultural groups (Islamists, Confucians) that take steps to prevent preference change by shielding themselves from information about competing lifestyles — what Elster calls “self-paternalism.” These examples differ somewhat in that the current “self” does not seek to undermine the future self, with whom it feels in conflict, but rather the current self and the future self have the same interest in preventing preference changes that presumably would lead to the future self being less happy.

Elster (2000) on emotions as credibility enhancers

As part of my summer reading program, I recently read Jon Elster’s Ulysses Unbound (2000) and will be posting some thoughts on it here. In this first installment I’ll discuss the idea that emotions may provide a form of self-binding that can help to overcome self-interest.

In section I.5, Elster considers provocative work by Frank and Hirschleifer that claims (separately) that emotions like envy, anger, guilt, or honesty “could have evolved because they enhance our ability to make credible threats.” The basic idea here is that in some situations an actor would benefit from being able to make threats, such as the threat to refuse a small offer in an ultimatum game, but that those threats are not credible without the actor feeling anger or another “irrational” emotion. The purpose of some emotions, in this view, is to produce privately-experienced costs and benefits that can allow players to make threats and promises that are otherwise non-credible. As Elster points out, it is not the emotions per se that can help actors overcome commitment problems; rather, it is the reputation for being emotional that does it (i.e. other actors’ knowledge of one’s privately-experienced emotional costs and benefits), and actually experiencing these emotions could be a good way to develop that reputation.

On page 51 Elster makes a nice move in linking ideas about self-interest and morality to Frank and Hirshleifer’s ideas on the evolutionary advantages of the moral emotions. First he clarifies that the emotions Frank and Hirschleifer are inserting into behavior are really standing in for side benefits and side penalties that make a given behavior sustainable in a repeated game with a given payoff structure and discount rate. He then goes on to point out how this is “essentially turning an old argument on its head”:

From Descartes onward it has often been argued that prudence or long-term self-interest can mimic morality. Because morality was thought to be more fragile than prudence, many welcomed the idea that the latter was sufficient for social order. By contrast, if one believes that self-interest is likely to be shortsighted rather than farsighted, the moral emotions might be needed to mimic prudence.

To restate the point somewhat, if we can define a type of behavior that is the “moral course of action” (e.g. to give generously in a dictator game), and we can identify the purely self-interested course of action (e.g. give nothing), then any discrepancy between the two can be bridged by “moral emotions” that the players experience (e.g. a warm glow from giving, or guilt from not giving). This clarification highlights what might be dissatisfying about this work (as reported by Elster), in common with e.g. the classic work on the paradox of voting or even Levi’s invocation of normative values in explaining tax compliance: any apparently paradoxical behavior can be explained by saying that the payoffs have been misjudged. But this is not what Frank and Hirshleifer are doing, presumably: they want to explain the existence of emotions, which are privately experienced costs and benefits provoked by interactions with others, not the paradox of cooperation; their interesting point is that these emotions may serve at least in part to help us develop reputations that make our (self-serving) threats and promises credible.

Levi: “Quasi-Voluntary Compliance”

A key term in Margaret Levi’s Of Rule and Revenue (1988) is “quasi-voluntary compliance.” As far as I can tell, Levi uses this term to refer to a situation in which citizens comply with the state’s demands (e.g. to pay taxes) out of a combination of strategic and normative considerations. The strategic considerations involve the calculation of the probability of being caught and the punishment that would be exacted; the normative considerations include the sense that the bargain between the citizen and state is “fair” — that the citizen believes that the state is providing sufficient public goods in return for his tax payments, and that the burden for the state’s activities falls on the citizenry in an equitable way. Thus Levi wants to emphasize (e.g. on page 53-54) that citizens will base their compliance decisions on their understanding of the government’s enforcement procedures not just because those enforcement procedures affect the citizen’s own probability of being caught, but also because they affect the citizen’s view of whether others will be paying their fair share. (And, citizens care about whether others are paying their fair share not just because this affects the probability that they will be caught but because they place a normative value on fairness and will refuse to pay taxes if they perceive the system to be unfair.)

If this is indeed what Levi means by “quasi-voluntary compliance,” then her explication the concept is disappointingly convoluted. At points Levi presents the idea of quasi-voluntary compliance (QVC) as if it were a fundamentally different conception of compliance from what would come out of a Becker-style costs-and-benefits analysis. Unless I’m missing something, it’s not: it merely adds normative concerns to the citizens’ calculations. This does contribute something important to the analysis of rulers’ strategies: if citizens care about fairness or legitimacy, then rulers must take care in choosing tax rates and enforcement systems that they do not violate citizens’ sense of fairness and thus undermine their revenue goals; rulers trying to maximize revenue should also think about the public good they are providing (and citizens’ perceptions of those goods) because, even though these goods are non-excludable and thus would not be part of a purely materially-motivated citizen’s compliance decision, the government’s output matters to fairness-minded taxpayers. But this contribution would have been a lot clearer to me if it were introduced as an extension and modification of a common costs-and-benefits calculus rather than a wholly different concept of compliance.

Given that the definition of quasi-voluntary compliance (QVC) has to do with the utility function of citizens, in practice it should be hard to tell the difference between QVC and mere compliance (the situation in which people pay their taxes because of coercion pg. 64). The main point Levi makes is that citizens will comply less when they perceive that others are not complying and the state is not delivering promised goods (e.g. pg. 68). This could be because of fairness, but it could also be mere compliance: if others are not complying, I may be able to get away with not complying too because others’ non-compliance tells me that the enforcement system is not working well (and that my own non-compliance may be overlooked because so many others are also not complying). (Also, if the state is not providing public goods, maybe it’s because no one else is paying.) The question is how one would know how much (if at all) these normative considerations really matter. At some points QVC seems to be in effect when coercion is not observed, but of course the most successful coercion is the kind that is implicit. In the introductory chapters Levi does offer one phenomenon that would indeed be predicted by “quasi-voluntary compliance” but not in a non-normative account: “rulers invest in deterrence that constituents perceive as being directed toward others” (pg. 67). The challenge would be to distinguish a) deterrence that is carried out in order to boost tax revenues from those being targeted from b) deterrence that is carried out in order to boost tax revenues from others (and not because those others think “I could be next!”).

On to cases. How does QVC enter into Levi’s analysis of states’ revenue strategies? In discussing the Roman Republic, Levi refers to QVC in her explanation for the use of “tax farming” in remote provinces; her argument seems to be that without the social rewards of high income and citizenship, and without detailed information on citizens, collecting taxes in the usual way would have been too expensive. “Without quasi-voluntary compliance, the agency costs of the census rose significantly” (pg. 80). In early parliaments in France and England, QVC helps us understand the role of parliaments in providing a venue in which the ruler could justify his taxes (“parliamentary consent shrouds a ruler’s policies in legitimacy”, pg. 118). In the introduction of the income tax in 18th-century Britain, Levi sees QVC at work in the attention that was paid to the justifications for the tax and the equitability of its administration. In 20th-century Australia, Levi sees QVC as helping to explain individual taxpayers’ objections to their assessments, as well as tax revolts and labor union campaigns against tax avoidance. I find these claims to be more convincing as we move ahead in time, in part because in the latter cases Levi brings to bear more evidence of debates about justification and enforcement (which would be hard to explain in another way), whereas in e.g. the Roman case one could easily explain the use of tax farming in the provinces without recourse to QVC.

I think the best evidence that citizens’ sense of fairness is an important constraint on taxation is that public debates surrounding taxation focus on both government waste and evasion/progressivity/fairness; if citizens were merely being held up by a predatory state and paying just because they don’t want to be arrested, then they should not care about what the government does with their tax revenues or whether anyone else is similarly being held up. On the other hand, for both kinds of debates one can argue that pure economic explanations are sufficient. When citizens complain about government waste or otherwise complain that they are paying too much for the government services they receive, it could simply be that the citizens legitimately want lower taxes for all of society (see e.g. Meltzer-Richard) or simply for themselves (the standard free-rider prediction). Likewise, when there are debates about how the tax burden is to be shared, it need not be that citizens actually care about fairness: it could be instead that simply want to pass more of the burden on to others. I am intrigued by the idea of building on Levi’s QVC idea to investigate patterns in parliamentary debate over time, but this indeterminacy gives me pause: what speech would persuade a skeptic that the speaker is concerned about fairness and not simply about reducing his own tax bill?

In conclusion, I come away from this book intrigued by the contention that fairness helps to explain the history of state revenue extraction but disappointed in the somewhat muddled way in which the ideas are presented and the lack of evidence for the importance of fairness. I think (and I suspect Levi might agree) that this is a book that would have benefited from an explicit application of game theory, or at least a bit more rigor in specifying e.g. the citizens’ outside option, what non-compliance would mean, etc. The idea that normative considerations matter to citizens in determining whether they will pay their taxes is intriguing and believable, but I don’t see a way to convincingly demonstrate to a skeptic that considerations of fairness are fundamental and not epiphenomenal.