Designing Institutions to Aggregate Preferences and Information

I consider the design of policy-making institutions to aggregate preferences and information. A pervasive incentive problem hinders the creation of desirable deliberative institutions; participants that expect to have minority interests have an incentive to misrepresent their information. Moreover, contrary to conventional wisdom, diversity of preferences or information sources amplifies this incentive problem. It is only when all types of participants expect to have the majority interests or no individual’s private information can be decisive that full aggregation is possible. The addition of external incentives enables efficient aggregation of preferences and information. The external incentives need only depend on agent actions and, interestingly, the magnitude of these external incentives can be vanishingly small for large groups. These external incentives can be created by augmenting deliberation with concerns about ex-poste monitoring or ex-interum perceptions of competence, the opportunity to trade in information markets, or the opportunity to join clubs with network externalities.