EORGE Akerlof had contributed an interesting paper on information asymmetry to the Quarterly Journal of Economics back in 1970. Very few among his peers could perhaps anticipate that the slim but rigorous work would eventually get him the most prestigious award for an economist, the Nobel Prize, in 2001 shared with Michael Spence and Joseph Stiglitz.
Akerlof used a simple model of second-hand cars market to illustrate how a lack of symmetrical information between the buyers and the sellers could eventually lead to a market failure. In American slang, lemon means a bad car, plum a good car.
Since the information about the actual quality of a second-hand car is not available with the prospective buyers, each probable buyer would rationally expect ending up purchasing a lemon. Understandably, there is a price difference between the two varieties, with the plum being costlier.
Information asymmetry leads to a peculiar situation where the plums are crowded out of the market as the buyers are found ready to buy the lemons at inflated prices. Such a problem in an imperfect market is labeled as adverse selection on the part of the buyers.
Over the last four-and-a-half decades, there has been a huge stockpiling of literature on the issue of information asymmetry, and the ways to solve it. But that’s a different story, for a different audience.
For the present, however, we discover a parallel of this stylish microeconomic theory in Indian elections. For the sake of convenience of the readers, we can customise the Akerlof Model in the following manner.
In the electoral fray, there are honest, efficient and clean contestants with no criminal records. And, of course, there are dishonest, inefficient and tainted contestants with criminal records.
The former constitute the plums (good candidates) and the latter, the lemons (bad candidates).
For a correct and informed selection to be made out of the available candidates competing from an Assembly or a Parliamentary constituency, the voters are ideally required to have access to costless information on the character, antecedent, educational background, income and wealth, ideological loyalty to the sponsoring political party etc of all the players in the ring.
But, unfortunately, Indian electors ~ a mammoth size of 80.40 crore, bigger than the combined European population ~ are never endowed with such information so critical for making a rational decision faced with a finite choice set. In the recent past, as a part of electoral reforms, some new features have been put in place.
For example, the candidates are required to produce affidavits while filing their nominations. Such affidavits include self-declaration about education, marital status, source of income, quantum of income and wealth, and also criminal records, if any.
All these are good measures of providing qualitative information about a candidate to the electorates. Spence would call them signals to the buyers to help them avoid adverse selection.
But, ruefully, in the context of Indian elections, more often than not we come across serious discrepancies between the declared and the actual sets of facts.
The controversy around the educational achievement of none lesser than the Union human resources development minister, Smrithi Irani, is a case in point. Not to mention the even more serious allegation against our Prime Minister as regards his marital status. So the voters can’t really rely on those signals.
The way sellers become successful to spoof buyers with a low-quality-over-priced product, Indian political parties are found deft at pulling the wool over the eyes of the voters by getting their lemons sold out at the hustings.
National Election Watch, and Association for Democratic Reforms, have been analysing the educational status, economic fortune and criminal records of the MPs and MLAs based on their self-sworn affidavits for the past few years.
The results that are coming out in the public domain are disturbing to say the least. Among the 543 elected MPs to the 16th Lok Sabha, 186 or 34 per cent have criminal records; 112 MPs or 21 per cent are facing serious criminal charges; and 82 per cent or 442 MPs are billionaires.
What is more startling: these numbers have been steadily rising over the years. A very cautious and conservative kind of interpretation should tell us that money and muscle continue to have increasing sway over the electoral outcome in the largest democracy in the world.
In the emerging political environment, honest, integrated, meritorious but financially weak people are driven out of the electoral politics, much like the plums giving way to the lemons in the commodity market.
To make things even more bizarre, the political parties grossly violate their election manifestos once they romped home to power. There is no credibility of the top leaders, as their poll promises during the campaigns hardly match their performance while in office.
An election is won on the unifying plank of inclusive development, but the country is governed on divisive and exclusive agenda.
A bunch of ministers takes the oath of office and secrecy by the name of the Constitution that solemnly resolves to constitute a Sovereign, Socialist, Secular, Democratic, Republic, but the very next day reports to an organisation, which is opposed to the very idea of a secular India.
A party, which is chosen by the aam aadmi during elections, works for the khaas corporate interests when saddled in the government.
Such a total betrayal of the people’s mandate becomes repetitively possible in India because the voters are never allowed to choose their representatives with the fullest knowledge about the parties and their nominated candidates.
Electoral politics in India has practically left no room for good people. But the voters are surely not to blame. After all, how can you expect a plum to roll out from a showroom full of lemons!
In economics, we call such a state market failure. Many are curious to know, how a political scientist would describe this nadir.
(Joydeep Biswas is an associate professor of economics at Cachar College, Silchar, Assam. To see all his previous articles, click here)
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