Pareto Optimality in Electoral Competition

The core of welfare economics consists of the proof that, for certain classes of goods, perfectly competitive markets are efficient in that they provide Pareto optimal allocations of these goods. In this paper, the efficiency of competitive elections is examined. Elections are modeled as two-candidate zero-sum games, and three kinds of equilibria for such games are identified: pure, risky, and mixed strategies. It is shown, however, that regardless of which kind of equilibrium prevails, if candidates adopt equilibrium strategies, an election is efficient in the sense that the candidates advocate Pareto optimal policies. But one caveat to this analysis is that while an election is Pareto optimal, citizens can unanimously prefer markets to elections as a mechanism for selecting future policies.