A NONEQUILIBRIUM ANALYSIS OF UNANIMITY RULE, MAJORITY RULE, AND PARETO

Abstract

It is widely held that in the absence of transaction costs unanimity rule is more effective at producing Pareto improvements and Pareto optimal outcomes than majority rule. We compare unanimity rule and majority rule in their ability to adhere to the Pareto criterion and to select Pareto‐optimal alternatives using a single‐dimensional spatial voting model without rational proposals. This produces two interesting results. First, if proposals are random, then majority rule is almost always more adept at selecting Pareto‐optimal alternatives than unanimity rule. Second, if individuals propose their ideal points, then majority rule selects Pareto‐optimal outcomes at least as well as unanimity rule. These results contrast with equilibrium analyses, which typically show that unanimity rule is the best voting procedure for maintaining Pareto optimality. (JEL D7, C61)