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Electoral funding cost-benefit analysis




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In order to be more specific about the point that is being made on IPI,
let us do a cost-benefit for running for election. First, the facts:

The Election Commission has specified all details on their new web site
at
	http://www.eci.gov.in/tabs/top_elec_sys.htm

as follows:

Limit on poll expenses  
----------------------

There are tight legal limits on the amount of money a candidate can
spend during the election campaign. In most Lok Sabha constituencies the
limit as recently amended in December, 1997 is Rs 15,00,000/-, although
in some States the limit is Rs 6,00,000/- (for Vidhan Sabha elections
the highest limit is Rs 6,00,000/-, the lowest Rs 3,00,000/-). Although
supporters of a candidate can spend as much as they like to help out
with a campaign, they have to get written permission of the candidate,
and whilst parties are allowed to spend as much money on campaigns as
they want, recent Supreme Court judgements have said that, unless a
political party can specifically account for money spent during the
campaign, it will consider any activities as being funded by the
candidates and counting towards their election expenses. The
accountability imposed on the candidates and parties has curtailed some
of the more extravagant campaigning that was previously a part of Indian
elections.

Free Campaign time on state owned electronic media
--------------------------------------------------

By a recent order of the Election Commission, all recognised National
and State parties have been allowed free access to the state owned
electronic media-AIR and Doordarshan- on an extensive scale for their
campaigns during elections. The total free time allocated extends over
122 hours on the state owned Television and Radio channels. This is
allocated equitably by combining a base limit and additional time linked
to poll performance of the party in recent election.


Arvind's comment: 

> One way
> that candidates work around this is to set up dummy
> candidates and all expenses of the workers/vehicles
> of the dummy candidates are not in the name of the 
> actual candidate.

Reference (can anyone get this?)

> > Author: Malik, Yogendra K.
> > Title: Political Finance in India
> > Source: Political Quarterly, v60n1 (Jan 1989): 75-94     

ANALYSIS

(very rough)

Assumptions:
------------

* Assume that there is no black money used.
* Assume that supporters do not fund substantially (as citizens,
	we usually free ride)
* Assume there are n major candidates
* Assume that if elected, the candidate survives 5 years
* Assume that once the 5 years are over the candidate retires and
	lives for another 25 years
* Assume no inflation
* Assume a discount rate of 10%
* Assume that the MP is not assassinated (i.e., we do not add
	any risk premium)
* Assume there is nothing to forfeit if a candidate loses an election.

Data:
----

Cost:					15 lakhs
Expectation of being elected:		1/n

Returns (net salary paid as MP)		Rs. 4,500 x 12 x 5 
Plus pension at a fixed rate of 	Rs. whatever (say 5,000???)
						per month (data please)

Rule: divide each annual return by n to ensure that the expectation
	of being elected 

Calculation:
------------

PV of Return =  0.54  + 0.54  +      0.54       +  etc.
		----    ----         ---- 
		 n      n (1.1)      n (1.1)^2 

I fail to see ANY value of n which will ensure that NPV is positive,
where NPV =  15 - PV of return

Now come to the reality:

Cost of contesting election = close to 3-6 crores (300-600 lakhs), as
stated by none other than TN Seshan, the ex-CEC. There is NO possibility
on earth or moon, for a candidate to survive the electoral process
without complete bankruptcy. Are we best served by these theoretically
self-sacrificial goats and fools who like bankruptcy? My wife won't
allow me this atrociously foolish enterprise, at least. 

Result: ALL BUT THE CORRUPT ARE DRIVEN OUT OF THE POLITICAL MARKET (this
is a much more severe result than Akerlof's lemon result, but I don't
know any wide spread study of this in India)

Through this very casual calculation I am trying to do something which I
have not seen clearly shown in any journal or paper so far (I have not
read much, so someone may please show me such a simple analysis). There
may be errors in the above analysis; so will someone please show me a
better analysis?

Thanks,

Sanjeev

PS: Dear Henry, you have not yet replied to the my response reg the
Puneet proposal. Please do so since on this list, you represent a leader
of the dalits, and you must be specific and clear on the discussions
rather than dismiss attempts to solve the problem. If you do not respond
clearly, then Puneet's views will get on the main manifesto which IPI
will then circulate across India this year. 




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