It seems Rahul Gandhi has come up with the name INDIA, short for the group of political parties that will oppose the BJP in the general election of 2024. Apparently the alliance will ask the voters to vote for INDIA.

It’s a nice idea but will it work? Indeed can the opposition alliance work? The answer depends on the formation’s internal incentives. Or that’s what economics tells us.

The biggest positive incentive for the parties that make up the non-BJP alliance is the possibility of avoiding total oblivion after 2024. Or, as Benjamin Franklin said about signing the declaration of American independence, “We must all hang together, or, most assuredly, we shall all hang separately.”

This is particularly true of the Congress which had 19 per cent of the national vote in 2019, but just 54 seats. The BJP had 38 per cent and 303! However, this high vote wasn’t for the Gandhi family. It was for the local State leaders who, as J Scindia showed, can be ‘erratic’.

On the other hand, the biggest disincentive within the opposition is the rivalry that each of the constituents of the non-BJP alliance has with the Congress at the State level. None of them trusts the Congress.

All of them know the story of the monkey who asked the crocodile to help it cross the river. Halfway down, the crocodile attacked the monkey. When the monkey asked why, the crocodile said because I am like that only.

So this could be one of those cases where even when they hang together they end up hanging separately. It’s inherent in the situation. Economics has a name for it: misaligned incentives.

Misaligned incentives

An American writer-journalist-political thinker called David Callahan classified incentives as being of three types: remunerative, coercive and moral. We can rule out the last in politics.

Next, if you take the remunerative incentive, it’s clearly present because having power means the chance to feed at the tax trough. And there’s a paradox there: the more the state spends on development, the higher is the corruption.

And coercive, of course, is obvious: the possibility of political oblivion. Most parties in the new alliance are joining because of this.

This being so, the question that a good economist would ask is if the opposition alliance’s incentives are properly aligned. Or are they working at cross purposes?

To answer this you have to know what economics calls the principal-agent problem. This says that incentives are perfectly aligned only if the interests of the principal coincide with that of his or her agent.

Now, if you agree that the Congress is the principal, and the others are the agents, how well do its interests coincide with that of the other parties? This is where the bone gets stuck in the throat.

A Sonia proxy like Manmohan Singh is always a possibility that frustrates the other aspirants. It leaves the door open for ‘erratic’ behaviour.

Be that as it may, I think the incentive structure in the opposition alliance is not properly aligned because it’s not properly designed. These days in Indian elections it all boils down to two things only.

One, the degree to which the Congress is willing to give up seats in favour of the local party. Two, the degree to which it is willing to finance a potential opponent’s election.

In effect, the principal has to pay the agent not knowing whether he or she will betray him or her. There is what’s called a cobra effect here, so called because of completely unintended consequences.

Cobra, because the British government in India offered rewards to kill cobras. Soon people began to breed them to kill and claim the reward.

The BJP alliance

The BJP, too, is putting together an alliance where it is the principal and the others are the agents. The difference with the opposition alliance is that every member of the BJP’s alliance knows that the top job belongs to the BJP. Its incentives are better, though not perfectly, aligned. ‘Erratic’ behaviour can’t be ruled out, a la Nitish Kumar.

That said, it’s also the case that the members of its alliance are politically almost wholly irrelevant. Their job is to deliver the votes that enable the BJP to win seats.

Let me explain this. Population growth has made formerly tiny social groups politically more important. These groups now form parties to leverage their numbers. In return for money they transfer their votes.

Clearly the incentives in the NDA are less badly aligned than in the ridiculously named Congress alliance. Someone has filed an FIR against it saying it violates the Emblems Act.

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