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WHY ARE THERE DEMOCRACIES? A PRINCIPAL AGENT ANSWER *
Author(s) -
O'Flaherty Brendan
Publication year - 1990
Publication title -
economics and politics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.822
H-Index - 45
eISSN - 1468-0343
pISSN - 0954-1985
DOI - 10.1111/j.1468-0343.1990.tb00027.x
Subject(s) - principal (computer security) , aggregate (composite) , computer science , mathematical economics , microeconomics , economics , computer security , materials science , composite material
Many organizations operate by majority rule. Why? I consider elections as ways to aggregate information rather than ways to reconcile preferences. This is a principal‐agent problem with many principals. Only mechanisms that minimize the weighted sum of type 1 errors (neglecting a deserving agent) and type 2 errors (rewarding an undeserving agent) can escape manipulation. Majority rule uniquely minimizes the sum of errors. Thus majority rule is a very good way to aggregate information.