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Davis - Why Do Politicians Lie

Davis - Why Do Politicians Lie

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Public Choice 88: 1-13, 1996. © 1996 Kluwer Academic Publishers. Printed in the Netherlands.

Towards a positive theory of political rhetoric: Why do politicians lie?

MICHAEL

L. D A V I S & M I C H A E L F E R R A N T I N O

Department o f Economics, Southern Methodist University, Dallas, T X 75275

Accepted 12 July 1994

Abstract. This paper presents a model in which politicians can increase the probability of election by making exaggerated claims about the benefits of their own platform - referred to as positive campaigning - and by exaggerating the undesirable characteristics of their rival - i.e., negative campaigning. Such lies may be detected at some point in the future and thus result in a costly loss in reputation. Thus the politician must tradeoff immediate benefits against potential future costs. Of course this problem is similar to any commercial endeavor - a car maker, for example, is tempted to claim that his car is better and the competition's is worse than it is. But it is shown that the lack of transferable property rights to political office makes lying more likely in political markets. It is also shown that there is a natural tendency for politicians to engage in more negative campaigning.

1. Introduction T h e 1858 Illinois s e n a t o r i a l c a m p a i g n witnessed w h a t m a n y r e g a r d as t h e m o s t c o m p e l l i n g p o l i t i c a l e x c h a n g e in A m e r i c a n h i s t o r y , t h e d e b a t e s b e t w e e n A b r a h a m L i n c o l n a n d S t e p h e n D o u g l a s . I n a series o f e n c o u n t e r s , as well as in o t h e r c a m p a i g n i n g , D o u g l a s d o w n p l a y e d his views r e g a r d i n g t h e M i s s o u r i C o m p r o m i s e , t h e D r e d S c o t t d e c i s i o n a n d t h e o t h e r t r a u m a s o f the 1850s, leading i n s t e a d w i t h the c h a r g e t h a t L i n c o l n was a secret a b o l i t i o n i s t w h o s e u l t i m a t e o b j e c t i v e was r a c i a l e q u a l i t y . I n a speech, as q u o t e d in M c P h e r s o n (1987: 182), D o u g l a s said: L i n c o l n believes t h a t t h e A l m i g h t y m a d e the N e g r o e q u a l to t h e white m a n . . . H e t h i n k s t h a t t h e N e g r o is his b r o t h e r . I d o n o t t h i n k the N e g r o is a n y k i n o f m i n e at all... This g o v e r n m e n t . . , was m a d e b y white m e n , for the b e n e f i t o f white m e n a n d their p o s t e r i t y , to b e e x e c u t e d a n d m a n a g e d b y white m e n . A n d in a l a t e r speech ( M c P h e r s o n 1987: 185):

If you desire them (blacks) to come into the State and settle with the white man, if you desire them to vote . . . . then support Mr. Lincoln and the Black Republican party, who are in favor of the citizenship of the negro. Douglas was lying. In fact, Lincoln's views on race relations were very much in the 19th mainstream, he did not even favor abolition, let alone equality. To quote again from McPherson (p. 186): Lincoln spelled out his position with clarity: " I am not, nor ever have been in favor of bringing about in any way the social and political equality of the white and black races, (applause) - that I am not nor ever have been in favor o f making voters or jurors of negroes, nor of qualifying them to hold office, nor to intermarry with white people; and I will say in addition to this that there is a physical difference between the races which I believe will for ever forbid the two races living together on terms of social and political equality." Examined as a problem of rhetoric, Douglas' strategy is remarkable in two regards. First, his prevarication was almost certainly inconsistent with his nonpolitical persona. Douglas, whatever his failings, seems hardly to have been the cynical manipulator that these quotes suggest - it is difficult, for example, to imagine him cheating Lincoln in a card game or a business dealing. Why, then, • did he so effortlessly stoop to such dishonorable behavior during a political campaign? Secondly, why, having chosen to lie, did he lie about Lincoln instead of exaggerating some positive element of his own character or positions? Lying creates both benefits and costs for liars. Thus, it seems reasonable to examine the decision to lie through the lens of microeconomics. And indeed, the economics o f lying can be thought of as a subset o f the economics o f information. An incomplete list of the relevant literature would include the papers by Akerlof (1970), Klein and Leffler (1981) and Crawford and Sobel (1982). There is, of course, a substantial literature modelling political behavior as economic behavior. In this piper, we attempt to link these two approaches in order to better explain the kinds of behavior typified by the example of Lincoln and Douglas. Tullock (1967: Ch. 9) also considers the economics o f lying. Because the particulars of our model are very different, we obtain different (but not contradictory) results. But both his model and ours share the same underlying spirit. In what follows, we attempt to explore how what we believe are important distinctions between political markets and other markets affect the type of claims made in each. We present two main results. First, that because of the nature of property rights in political office, political rhetoric will be less honest than other types of speech. Second, that because of the way political claims are

verified, there is a special tendency in political markets to exaggerate claims about the deficiencies o f the competing side - in the jargon o f politics, negative campaigning. In the next section we present a brief verbal discussion that captures the flavor of our work. Section 3 formally models the politicians decision about whether to tell the truth. Section 4 considers how the model will be modified if voters understand the incentives faced by the politicians. Conclusions and further discussion are in Section 5.

2. Political markets, economic markets and lies
Lying, alas, is hardly unique to politics - children lie to parents, students to teachers, and advertisers to consumers. In each of these relationships, though, powerful forces exist to moderate untruths: parents can impound bicycles, teachers will assign failing grades and jilted consumers can sue. But while these explicit sanctions may, in some situations, make up an important part o f the cost o f lying, nearly every liar must consider the value of lost reputation - dishonest children risk not only bicycles, but the future benefits that follow a parent's trust. The need to maintain reputation may be a particularly vital force for truth in those instances where direct penalties to liars (e.g., lawsuits or forfeiture of some bond) are costly or otherwise unavailable. Both political markets and many economic markets have this characteristic. It is simply impractical to sue a soup manufacturer who promises but does not deliver a palatable product.It is similarly impractical to sue a politician who promises peace and prosperity but creates war and depression. Often the best protection against a dishonest vendor or deceitful politician is the threat to do business elsewhere. The structure of property rights that characterizes the classic business firm serves (not by accident, of course) to increase the importance of reputation to the institution. In so far as property rights to the firm are transferable in an efficient market, the value of future reputation is capitalized in the present value of the firm. Thus, a firm that is tempted to tell a lie that may tarnish the firm's reputation at some point in the future will be forced to weigh these costs against the immediate benefits of the lie. This, of course, is not to say that firms will tell the level of truth that maximizes wealth - if it is possible to deceive consumers in the short run it may also be possible to deceive the capital markets - but it is certainly true that the transferable property rights give owners of firms an incentive to maintain a reputation for honest dealing. A critical difference between many firms and politicians is that the latter do not hold transferable property rights to their office.1 Thus, politicians as a group have less incentive to be honest since they need only be concerned about

how lies will affect their reputation during their tenure in office. For instance, a politician who plans to retire in one year would not be dissuaded from telling a lie that could be discovered only two-years hence. 2 Political markets are also different from many other economic markets in that the nature of the competition is essentially "winner-take-all." As we demonstrate in the formal model that follows, this also creates powerful incentives to lie that may not be found in other settings. Consider a politician running for office that, if lost, would end his career. If there was a serious danger of defeat, there would be little reason not to lie, so long as the value to the politician of holding office with shattered reputation exceeded the alternative of defeat. Politicians advance their cause by making two kinds of claims: statements about their advantages o f their positions, positive claims, and statements about the disadvantages o f opponents, negative claims. This, of course, is true of advertising for many types products - the demand for a certain brand of soup is bound to increase when another brand is found to be unwholesome. The need to maintain reputation is an important deterrence to either type o f lie only to the extent that a falsehood can be discovered. And herein, we think, is another important difference between political and economic markets. In many economic settings, positive and negative claims can be tested with about equal ease, and so advertisers will not have a strong bias towards either type of claim. However in political markets the outcome of the election is usually critical in determining which claims will be tested. If negative claims succeed in securing the desired outcome, they may never be tested. Thus, if they are false, the politician making them suffers no loss o f reputation. On the other hand, if positive campaigns are successful, the claims made are more likely to be tested, and if false, cause the politician to suffer a loss of reputation. As we explain more formally in the next section, this asymmetry creates a natural bias towards negative campaigns. To get a better feel for how this bias arises, consider the example o f a politician trying to decide whether to emphasize a negative theme - perhaps claiming that the crime rate will rise if her opponent is elected - or some positive theme - her own commitment to law and order. If the politician is elected on the strength of her positive claims, she must know that her promises will be tested against her performance. On the other hand, a successful campaign means that negative claims can never be tested - the only way the electorate can ever know whether the opponent would precipitate a crime wave would be to elect him to office. Thus, if the positive or negative claims have the same impact on the chances of election, the politician will be more tempted towards exaggerating the negative, since in so doing she increases the chances o f election and so lowers the expected cost of lost reputation. There is an even stronger bias towards negative campaigning when, if the election is lost reputation may be

unimportant. Indeed, if this is the case, then the politician ought to make the most negative claims possible. Political markets are probably not unique in creating asymmetric incentives for negative claims. All that matters is that if the object of the claim behaves in the desired way, the veracity of the claim is more difficult or verify. This may arise due to inefficient information flows, foreclosure of options, or inefficient information processing. For example, certain types of household maintenance services are purchased infrequently. It may be costly to identify other customers having experience with a particular seller, and obtaining a price quote may involve a time-consuming house visit. If a potential seller informs a householder that methods generally used by competitors for duct cleaning or concrete repair are inferior or will damage the house, such claims may be believed and achieve a sale for the seller. This means, of course, that the quality of competitors' services will remain untested. The perverse incentives are compounded in that if the seller's positive claims about own performance prove to be unfounded, the buyer may find that word-of-mouth and reports to local chamber of commerce are inefficient methods of reducing the seller's reputation. Another case of negative claims in commodity markets arises in advertising to children. The purchase of goods consumed by children often involves complicated interaction between parent and child. As a consequence, the child may be unable to conduct experiments involving alternating purchases of competing experience goods, even when the financial cost of such experiments are relatively low. In addition, children are likely to be less skilled in revising their prior beliefs than other consumers. These circumstances are likely to increase the value to the advertiser of making exaggerated negative claims which, if believed, will forestall sampling of competing goods. For example, a recent TV advertising campaign for a national chain of pizza restaurants-cum-game arcades catering to children informs children that at other pizza restaurants they will be exposed to bad food, intense boredom and opera singing. 3

3. The model

3.1. Notation and assumptions We begin by assuming that a political issue must be decided in which there are two clear sides. The politician knows the true nature of these outcomes and so knows precisely the utility forthcoming to himself under each proposal as well as the true value that constituents will receive from the success of each side. Denote the politician's utility under the preferred policy as Up and the utility under the less desirable policy as U n. Without loss of generality let u n = 0, with UP > 0. Thus, for example, UP might represent the utility the politician

derives if he is elected as compared with defeat. If the issue is some legislative proposal U p gives the value to the politician of seeing his position adopted as opposed to some other. The politician can influence the probability that the desired proposal will be adopted by making claims as to the value (utility) that some constituent group will receive under either side. This constituent group might simply be the voters or, in the case of a legislative proposal, some special interest lobby that could, if sufficiently motivated, influence the legislature. Let Vcp denote the value the politician claims the constituent will receive under the proposal favored by the politician and Vcn the value the politician claims constituents will receive under the alternative. For example, Vcp might be the additional wealth the politician promises the voters if he is elected, and Vcn might be the decline the voter's wealth that the politician claims will result from the election of his opponent. Assume that the probability of the favored policy being adopted depends upon the difference in the values claimed under each. That is the probability that the politician will receive Up is given by p=po+P(VCp-Vcn), with P'(Vcp-v cn) > 0, where Po is simply the probability of the desired proposal passing if the politician made no attempt to influence the outcome (i.e.,
P(O) = o).

We assume that during the campaign the constituents do not know the true value that they will receive under each policy, which we denote Vtp and Vtn. However, at some time in the future, after the matter is decided, they may obtain better information as to the truth. We denote this realized, expost, value as Vrp and VTM. Note that in our model as, we think, in the political world the truth does not inevitably win out - i.e., Vtp need not equal Vtp. We assume that lying is costly to the politician in that it reduces the value of his reputation. To capture this, let the function r=R[(Vcp-vrp)2+ (vcn-vrn) 2] represent a measure, in units comparable to utility, of the politician's reputation. In the simplest case, Up might simply represent the income the politician will receive under the favored outcome, and R would represent the expected present value of all future income the politician would receive from his position. As the difference between what the politician claimed and what the constituent groups finally observes increases, it becomes more difficult for the politician to influence future events in his favor and so r would decline (i.e., we assume R'[.] < 0). As we develop more fully below, -R'(.) is essentially the marginal cost of lying. Thus, we make the usual assumption that marginal costs are non-decreasing (i.e., we assume R" (.) _<0). Notice that in this formulation lying is symmetric in the sense that incorrect claims as to advantages of the policy the politician wants adopted (or rather claims that are latter perceived to be incorrect) have the same effect on reputation as incorrect claims about the issue the politician wants defeated. Notice

also that r may be stochastic, especially insofar as what the constituents realize expost may be random. We consider this in more detail below. We recognize, o f course, that this formulation o f reputation is at best a rough summary o f what is surely a complex and mysterious process. However, since the purpose of this paper is not to model the process by which constituents decide how much faith to put in political rhetoric, this formulation is sufficient to make the points we think relevant. In our model, therefore, the politician has two decision variables: the positive claims to b e m a d e about the advantages o f desired policy, V cp, and negative claims about the alternative, V cn. The expected utility received from a pair of claims is therefore ¢p(VCp, vcn) = [Po + p(Vcp-ven)]uP + 8R[(VcP-vrn)2 + (vcn-vrn)2] (1)

where 5 is simply a parameter to measure the relative importance of reputation to current value. In the next two subsections we consider how the optimal levels of the claims under various conditions.

3.2. Optimal lying when ex post verification is possible
We turn our attention next to the question of the optimal deception when all falsehoods will eventually be discovered. Although this exercise is quite simple and generates predictable results, it is useful in establishing a benchmark for comparison with the case discussed in the next section in which some lies will go undetected. If the constituency eventually discovers the truth about how it will be affected by proposals, then it is true that V tp = V rp and V tn = V TM. Thus, substituting into (1), we see that the optimal claims must satisfy q)vcp = P ' (.)U p + 25R' [(VcP-Vtp) 2 + (vcn-vtn)2](VcP-Vtp) = 0 q)vca = -P' (.)U p + 26R' [(VcP-Vtp)2 + ( v c n - v t n ) 2 ] ( v c n - v tn) = 0 (2.1) (2.2)

Simply manipulation of these first order conditions confirms the obvious: that the politician will wish to exaggerate the desirable features of the proposition that he favors (i.e., Vcp-v tp > 0) while exaggerating the undesirable features of the negative (i.e., Vcn-vtn < 0). Perhaps more interestingly, we see that there is no bias towards either positive or negative campaigning in the sense that the magnitude of the positive lies are exactly matched in absolute value by the negative lies. 4

3.3. Optimal lying when the truth is hidden
Suppose that constituents can only determine if a politician has told the truth by comparing the claims that were made against what actually happened. Thus, only those policies that get passed can actually be tested. Suppose further that if the claim cannot be tested, the politician's reputation does not suffer. In other words, if the favorable outcome occurs, then V tp = V tp, and V rn ----V on. Similarly, if the unfavorable outcome comes to pass, then v r p = V cp and V TM ----- tn. This implies that the reputation is also stochastic and so the politiV cians expected utility function is q)(Vcp,vcn) = i~ {U p + 8R[VCp-vcn)2] } + (1-p)SR[(Vcn-vtn) 2 The optimal claims must satisfy (3)

q)vCP(-) = p' (.) { U p + 8R[(Vcp-vtp) 2]-~R[(vcn-vtn) 2] }
+ [Po + P ( - ) ] f R ' [(VcP-Vtp)2](VcP-V tp) = 0 (DvCn(.) = -p'(.)[UP+SR[(Vcp-vtp)2]-6R[(Vcn-vtn)2]} + [1-Po-P(-)]~SR'[(vcn-vtn)2](vcn-vtn) = 0

(4.1)

(4.2)

If some lies can be hidden, then it will no longer be the case that the politician will wish to balance negative and positive lies. It is straight-forward to demonstrate through the usual techniques that an increase in Po causes a decrease in the claim for the positive side and a decrease in the claims for the negative side. Thus, as Po increases the positive claims move back towards the truth and the negative claims move further away from truth. Inspection of the first order conditions reveals why this is so. In expression (4.1), the term [po+P(.)]~SR'[(Vcp-vtp)2](Vcp-vtp) represents the marginal costs of increasing the positive lie. As Po goes up, these costs go up and as lies become more expensive, fewer are told. In other words, to say that Po has gone up is to say that the favorable outcome is more likely to come about. Thus, the politician needs to be more careful about positive claims since these are more likely to be tested. In expression (4.2) the term [1-Po-P(-)]~R' [(vcn-vtn)2](vcn-v tn) is positive and can be thought of as the marginal benefit o f reducing the negative lie. As Po goes up, this marginal benefit declines. As the benefit to more honesty regarding the opposition goes down, more lies are told about the opposition. This result has an interesting corollary that supports our contention o f a bias towards negative campaigning: in those contests evenly matched before campaigning - i.e., those where Po = .5 - the politician will engage in more negative than positive rhetoric. To see this, suppose that after the campaign the

9 (vcn_vtn) 2
I

I

I
i

( Vcp-Vtp)2

.5

Po

Figure 1. Optimal lies as a function of pre-campaign odds of winning. odds of victory are even - that is Po + p(Vcp-vcn) = .5. It is obvious from the first order conditions that this implies that Vcp-v tp = -(vcn-vtn). It is, o f course, also true that when the after campaign odds are even, the pre-campaign odds must be less the .5. Thus, relying on the results that as Po goes up the negative lies get bigger and the positive lies smaller, it follows that when Po = .5 more negative campaigning occurs. These results are summarized in Figure 1, which shows a graph of the optimal level of negative and positive lies - i.e., ( v c n - v t n ) 2 and ( V c p - v t p ) 2 - as functions of the pre-campaign odds of victory. Here it is seen that the negative lies increase with the pre-campaign odds and the positive lies decrease. It is also seen that when the odds start off as even, there is already a bias towards negative claims.

3.4. Optical lies and the election oS..doom In the models presented thus far, the politician is assumed to value reputation even if the proposition fails. We made this assumption in order to demonstrate that our hypothesis about negative campaigning holds under even highly unlikely circumstances. In many cases this is obviously untrue. In particular, reputation as an honest politician may not be o f much value in other occupations. Thus, if the proposition is whether the politician will be elected, a defeat may render all reputation worthless. This is especially true when it is unlikely that a defeated politician will ever be able to run again. As might be expected,

10 this makes lying more extreme and negative campaigning more likely. Here again, we must consider separately the two cases where expost verification is and is not possible. When constituents can verify claims at some point in the future, the politician's objective function becomes q)(Vcp'vcn) = [Po + p(vcp-vcn)] {Up + 6R[(Vcp-vrp) 2 + (vcn-vrn) 2] } (5)

The only difference between this and the objective function given by (1) is that here the reputation function is deflated by the probability of success. This is simply equivalent to lowering the costs of lying and so we expect that there would be more lying. It is easily shown that in this case the lies are still symmetric. A more interesting (or at least more extreme) result follows when we consider what happens when constituents can not verify negative claims when the politician is successful. Here the politician's objective function is q0(Vcp,vcn) = [po+P(VCp-vcn)]{UP+6R[(Vcp-vrp)2]} (6)

Since this is monotonically decreasing in V cn, the politician will make the most extremely negative charges about the opposition possible. In other words, if a victory means that negative claims have no impact on reputation, and if defeat means that reputation is irrelevant, the politician should set the level of negative campaigning so as to maximize the probability of victory.

4. Voters' processing of politicians' claims
What happens when voters expect politicians to lie and base their expectation of the truth on a transformed version of the politician's claim, obtained through some form of Bayesian revision of prior beliefs? In general, this will reduce but not eliminate the politician's incentives to lie. In our model, the politician is essentially a Stackleberg leader, making claims to voters whose political support and evaluation of the politician's reputation is based on a relatively crude reaction to lies which does not take into account the politician's incentives. If we attribute more complex reactions to voters, this tends to reduce but not eliminate the politician's ability to make misleading claims. Consider first a relatively simple case in which voters react to politicians' statements by revising their priors in a Bayesian fashion, but in which they do not attribute overt strategic behavior to politicians. Specifically, voters assume that there are congenitally " h o n e s t " politicians who telPthe truth with probability ~th and congenitally "dishonest" politicians which tell the truth with probability ad,O < a d < a h < 1. The politicians report the value of a variable g

11 from which the voters derive utility and which will be subsequently confirmed. Let the variable take only two values, a truthful value gt and a false value gf. If politicians' utility is rising in the voter's perception of g, then gf>gt" In addition, voters have a prior probability 13 that any given politician will be honest. By straightforward application of Bayes' rule, after the politician announces gt and the voters conform it, they revise their value of 13 to fit = ahl3/(ahfi + ad(1-fi)), while if the politician announces gf and the voters later confirm the values gt, they revise their value of 13to fif = ((1-~h)fi/((1-~h)fi -l(1-~td)(1-13)). If is straightforward to show that ~t > ~ > ~f" Thus, the voters' repeated observation that an individual politician's claims are true or false lead to an evolution of the politician's reputation, but a gradual one. If politicians believe that voters reason in this way, it will thus reduce but not eliminate the tendency to lie. 5 The most general case is one in which both voters react to politicians' claims by revising their beliefs about politicians' honesty and in which politicians' claims are made in a way which explicitly recognizes that voters do this. Crawford and Sobel (1982) analyze a very general case of Bayesian Nash equilibrium in which one better-informed player (a "sender") sends a possibly noisy signal to another player (a "receiver '') who takes an action influencing the welfare of both players. In our case, the politician is the sender and the voter, the receiver. In general, in full Bayesian Nash equilibrium senders give receivers noisy information which truthfully indicates a general range of the sender's private information but not the precise value of the information. When the sender and receiver have widely differing utility functions, the noise is greater. This suggests a limited but still present potential for political obfuscation, as well as offering the prediction that politicians whose privately held policy preferences differ strongly from those of the electorate are more likely to lie. It remains an open theoretical question whether voters' understanding of the bias toward negative campaigning leads to an equilibrium which would eliminate that bias entirely or merely reduce it. Given the general characteristics of this class of models, we conjecture that a reduction rather than an elimination of bias is the likely theoretical result. Given that the negative bias is also due in part to other failures in information markets and in information processing as discussed in the introduction, it seems likely that persistence of a bias toward negative campaigning is the most probable practical result, as it could be sustained by, e.g., the existence of a significant minority of voters who are somewhat inefficient in revising their priors.

12 5. Conclusions It seems at times as if pleadings for a more virtuous government are only slightly more common than surveys showing the public to rank the credibility of politicians on roughly the same level as used car salesman and professional wrestlers. This paper has been quit deliberately designed to do something different - we are neither urging a more honest government (although that might be something we would prefer) nor presenting empirical evidence of its corruption. Rather, we argue that lying is a rational response to the peculiar incentives faced by politicians. In particular, we have argued, first, that the lack o f transferable property rights to political office makes it less costly for the politician to lie. Second, we have claimed that if positive claims can be verified more easily than negative claims, there may be a natural bias in politics towards negative campaigning. Before finishing, we should make clear that we do not regard our claims as conclusive - political rhetoric need not always be less honest or more negative than commercial speech. Lying is, after all, wasteful and so there is potential benefit to all interested parties in rules, habits or other institutions that lessen deception. In particular, our model assumes naive voters who do not recognize the asymmetries that we have identified. Clearly an interesting area of future research is to modify our formulation to consider the consequences of more sophisticated voters. In this very simplified form, though, we think our analysis might help explain why things like ideology and " d e c e n c y " seem to be more important to consumers in political markets than economic markets. 6 Consumers might not really care whether the man who cooks their soup has a warm and loving family, or is a mal-adjusted hermit. Indeed, they might not even care if he likes soup. However, since the politician is not subject to the same market forces as the soup manufacturer, voters might look for other signs of honesty. In particular, they would like to know that the politician follows a personal ethic that values truth (i.e., would feel guilty by lying), perhaps as evidenced by large and stable family or membership in well-established church. Voters might also find comfort in a politician who follows a well-understood ideology, since this makes it possible to test the veracity of the politician's claims against this ideology. We will end by suggesting that many of the information assymetries discussed here in the context of political competition will exist in other settings as well. In Section 2 we tried to point out that while we believe these problems are more severe in political markets, they exist in economic markets as well. But they will also be found in other settings as well. Consider, for example, two employees competing for a promotion or two suitors competing for the same persons affections. In both cases the rivals may have an incentive to exaggerate their virtues and disparage their rivals. The ability of the potential employer or lover to verify such claims will surely influence the types of lies.

13

Notes
1. Of course the property rights to many firms, especially small proprietorship and firms built on the reputation of a particular individual, are not always easily transferred. See Dick and Lott (1993) for a discussion. 2. In fact, this is only one example of how the lack of property rights to political office exacerbates the principal-agent relationship between politicians and constituents. For a review of these arguments as well as some empirical analysis of the problem see Davis and Porter (1989) or Lott and Davis (1992). 3. In extreme cases, the advertiser may adopt a very broad definition of substitute goods in order to facilitate the negative comparison. In another recent TV campaign for instant oatmeal entitled " W h a t ' s Hot, What's Not", children are informed that consuming the oatmeal will be more pleasurable than either listening to music played on oversized banjos, folk dancing with fat people in public squares, or riding a velocipede in formal dress. 4. To verify this result solve (2.1) for P'UP and substitute into 2.2 to obtain, upon cancelling terms, (Vcp-vtp) = -(vcn-vtn). 5. Laffont and Tirole (1993: 630-634) consider the case of an official regulating public utilities who is an agent of voting utility consumers and who is responsible for reporting the cost level of the utility. If the utility makes cost-reducing investments, the voters would like the official to report the cost reductions immediately so that price reductions can be implemented. The firm, preferring to keep price high while lowering costs to obtain the benefits of regulatory lag, may bribe the regulator to dishonestly report high cost to the consumers. In a framework similar to the one described above, Laffont and Tirole solve for the special case of a n = 1 while adding appropriate additional structure and conclude that "career concerns may reduce the government's incentive to collude (with regulated firms)". 6. Lott (1987), for example, has stressed the value of ideology in solving agency problems in political markets.

References
Akerlof, G.A. (1970) The market for 'lemons': Quality uncertainty and the market mechanism. Quarterly Journal o f Economics 84(August): 488-500. Crawford, V.P. and Sobel, J. (1982) Strategic information transmission. Econometrica 50(November): 1431-1452. Davis, M.L. and Porter, P.K. (1989) Measuring pure and apparent ideology in congressional voting. Public Choice 60(2): 101-112. Dick, A.R. and Lott, J.R. (1993) Reconciling voter behavior with term limits. Journal o f Public Economics 50(October): 1-14. Klein, B. and Leffler, K. (1981) The role of market forces in assuring contractual performance. Journal o f Political Economy 89: 615-641. Laffont, J.-J. and Tirole, J. (1993) A theory o f incentives in procurement and regulation. Cambridge, MA: MIT Press Lott, J.R. (1987) Political cheating. Public Choice 52(2): 169-187. Lott, J.R. and Davis, M.L. (1992) A critical review and extension of the political shirking literature. Public Choice 74: 461-484. McPherson, J. (1987) The battle cry o f freedom. New York; Oxford University Press. Tullock, G. (1967) Toward a mathematics o f politics. Ann Arbor: University of Michigan Press.

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