George Akerlof, a Nobel price winner in economics in 2001, proposed the lemons problem in an article in 1970. A competitive market fails when buyers and sellers have different (asymmetric) information about the quality of the product, and it is costly to obtain the accurate information. In the absence of accurate information buyers decide to base their offer price on the basis of average quality. Hence the low quality (lemon) product will undercut the high quality product, thus driving out the high quality product from the market. This insight is the basis of lemon laws, full disclosure regulations, warrantees, etc.
I argue that we face the same problem in the political market place, where voters are buyers of political candidates’ services and political candidates are sellers of their services. The price a voter pays is the political contribution to the political candidate of his or her choice. Both parties are guided by self-interest. Candidates would like to get elected and reelected, and voters want someone who promotes their interests. I would restrict my argument to politicians, but the argument could be extended to legislations, laws and policies.
I define a political candidate as lemon (low quality) if the political candidate does not promote benefits to a large majority of citizens. If the information provided by promoters of political candidates to voters is inaccurate and asymmetrical, and the accurate information is costly to obtain, we may end up electing lemon candidates. An example of the information asymmetry is swift boat episode used against John Kerry in the presidential election in 2004.
The question arises why would voters vote for lemon candidates? In the absence of accurate information about high quality and low quality candidates, median voter faces an equal chance that a candidate is of low and high quality. Now the question is what does increase the chance of lemons getting elected? The answer lies in the politics of large vs. small group of voters.
For a large group of voters who generally have diversity of goals and interests, as opposed to a narrowly focused small group of voters, the expected benefits of voting for a candidate are thinly spread out among the voters; costs to individuals to obtain correct information could be relatively very high. But for a small group of voters, organized around narrowly focused issues, benefits are greater to individual voters in the group relative to their costs. Such groups therefore are willing to spend greater amount on campaigns of those candidates who support their cause. In addition, lemon candidates have a higher probability of getting elected if they side with aspirations and preferences of a small group. On the other hand, voters in a large group would tend to contribute small amounts of financial support to candidates who support their multiple objectives. Hence, benefit cost calculations increase the probability of lemons getting elected.
The gun lobby and the Tea Party are examples of small group politics. They are primarily narrowly focused organizations. They often succeed in getting lemon candidates elected. The danger of unmitigated spread of asymmetrical information is that lemons will dominate high quality candidates in the political market place. The explosion of information without accountability of its accuracy does not help efficient functioning of the political market place.
The practical solution to this problem is that all voters (not just some narrowly focused groups) must become more involved in the political process and acquire more accurate information from reliable sources before supporting candidates. The media must also become more involved in providing accurate and detailed information on candidates and their voting record on a continuing basis. Jacob S. Hacker and Paul Pierson in their book Winner-Take–All Politics, while commenting on claims made in political campaigns, state, “ Even hard news consists of mostly sound bites. Efforts to analyze the veracity or relevance of these claims, or to place them in context are either left to the end or left out altogether.” It is hoped that voters in our democracy do not confirm Winston Churchill’s statement when he said, “ The best argument against democracy is five minute conversation with the average voter.”