1 Theoretical Comparisons of Electoral Systems

Elements of an economic theory of political institutions are introduced. A variety of electoral systems are reviewed. Cox's threshold is shown to measure incentives for diversity and specialization of candidates' positions, when the number of serious candidates is given. Duverger's law and its generalizations are discussed, to predict the number of serious candidates. Duverger's law is interpreted as a statement about electoral barriers to entry, and this idea is linked to the question of the effectiveness of democratic competition as a deterrent to political corruption. The impact of postelectoral bargaining on party structure in presidential and parliamentary systems is discussed. JEL classification number: D72. Department of Managerial Economics and Decision Sciences, J. L. Kellogg Graduate School of * Management, Northwestern University, Evanston, IL 60208-2009. E-mail: [email protected] 1 THEORETICAL COMPARISONS OF ELECTORAL SYSTEMS by Roger B. Myerson, Northwestern Univerity Schumpeter Lecture, 1998 Berlin meetings of the European Economic Association 1. Invitation to political economics To honor Joseph Schumpeter, I should try to begin as he might, from a long view of the history of economic theory, observing that the scope of economics has changed. With an initial goal of explaining the production and allocation of material goods, economic theorists developed analytical tools to predict how changes in market structure may affect rational behavior of producers and consumers. As the principles of rational choice were first developed in this context of price-theoretic decision-making, it seemed sensible to separate the study of markets from the study of other great institutions of society, because price theorists had a rigorous methodology for analysis of incentives in markets that could not be extended to government or other social institutions. But today, with game theory alongside price theory, we have a general theoretical framework to analyze incentives and rational behavior in any social institution or competitive arena. So where economists once defined their mission as predicting how changes in the structures of markets and government policies would affect the rational behavior of producers and consumers, now economists can accept the more general mission of predicting how changes in the structures and rules of any social institution would affect rational decision-making by the participants in that institution. Thus we can now develop rigorous models to better understand the institutions of civilized society, with the same breadth of vision that characterized the ancient