Deliberative Democracy or Market Democracy: Designing Institutions to Aggregate Preferences and Information

I consider the design of policy making institutions to aggregate preferences and information. The mechanism design approach makes it possible to consider a large set of institutions or game forms in which participants take observable actions prior to voting. A pervasive incentive problem is found; participants that expect to have the minority preference type will have an incentive to misrepresent their information. Consequentially, if some policy relevant information is observed by fewer than three individual participants and ideological types are not highly correlated no institution can fully aggregate the information and preferences without distributing transfers. Contrary to conventional wisdom, diversity may hurt deliberation as the incentives for information transmission are worse in groups with heterogenous sources of information or low levels of ideological correlation. Institutions that distribute transfers conditional on either the validity of agent reports of facts (like information markets), or the frequency of each type of report (like clubs) can truthfully implement the full information majority rule core policy. Overall, expectations of full information and preference aggregation with strategic participants require either strong correlation of preferences, the presence of external interests to structure incentives or information structures in which each piece of information is observed by several participants.