I suspect most of the people reading this blog have at least a passing familiarity with the VVSG, but for those who don’t, here is the nutshell version: the VVSG is a set of government guidelines for the security, integrity, usability, etc. of voting technology. States can voluntarily choose to ratify the guidelines, meaning they will only buy new voting technology that is compliant with the requirements. This pushes a significant cost onto the producers of the technology to research and develop compliant technology and then have it certified (to the tune of millions for certification alone).

The VVSG is under revision, and the ITIF recently hosted an open workshop (FOW-VVSG) on the VVSG featuring various experts from the voting community (including Punchscan’s David Chaum and Stefan Popoveniuc).

What I want to do in this post is examine a recurring analogy that got a lot of wear over the discussion portions of the workshop, and was also featured in at least one talk (Rebecca Mercuri @ 7:50 of this MP3). The analogy is a comparison between the costs imposed by the VVSG on the voting machine vendors and the costs imposed on the auto industry by airbag regulation. Like all good analogies, there is a surface point and then a wealth of insights underneath. I am going to riff on three: cost bluffing, identifying the bootleggers, and moral hazard.

Calling the Bluff

The surface point of the analogy is that the auto industry claimed airbag regulation would impose a prohibitive cost on them. Of course, they have an incentive to present pessimistic, highball cost estimates to try and deter the regulation. This is countered by consumer interest groups that present optimistic, lowball figures. For the policy makers, an accurate projection is needed to nail the exact requirements–they don’t want to put automakers in serious peril but no one likes folding on a bluff either.

An ingenious solution to problems of this sort is illustrated in a similar case of regulation: acid rain scrubbers (as noted by Tim Harford in the The Undercover Economist). In 1970’s, the government wanted to clean up the air and in particular, the chemicals pouring out of utility company’s smoke stacks that caused acid rain. The regulator’s proposed solution, mandating that companies outfit scrubbers, promised to be quite expensive for the companies and industry protested that the costs were too prohibitive.

In response, the government auctioned off a small set of “get out of scrubbing free” vouchers. The theory is that the utility companies would bid for these vouchers as long as the asking price was cheaper than expected costs, and stop bidding precisely when it would be cheaper to simply go and implement the scrubbers. This gave the government valuable information about the company’s true cost projections, and in addition, the process eloquently allocates the vouchers to the companies most threatened by the imposed costs.

How does this relate to voting? Well, if States were seriously concerned about the imposed costs, they could slowly phase in the VVSG by first offering a small number of vouchers for non-compliant technology and then annually scale back the number of vouchers. This gives smaller companies a chance to catch-up, and gives the government good cost projections.

Bootleggers and Baptists

Bruce Yandle often speaks of an unholy alliance that was once forged between Baptists and bootleggers, both of which wanted alcohol sales restricted on the Lord’s day–Baptists because they thought they were doing the good Lord’s work, and bootleggers because they would gain monopolistic control of the alcohol market for at least one day a week. Politicians who enacted this regulation could line their pockets with campaign contributions from the bootleggers while paying lip service to morality and devotion.

Russell Roberts abstracts this story to a general regulatory phenomena: politicians claiming the public interest while covertly advancing private interests. Remember the acid rain scrubbers? The companies that made them lobbied alongside the environmentalists for the regulation, as did certain coal companies whose dirty coal was the ultimate cause of the sulfur dioxide (had the regulation imposed a tax instead, the utility companies could have solved the environmental problem by buying cleaner coal instead of scrubbers. Bootleggers and Baptists… Dirty Coal and Environmentalists.

While the auto industry may have resisted implementing airbags, this wasn’t exactly the case with reductions in automobile pollutants. The American auto industry actually pushed for requiring catalytic converters in cars. A pollution tax, the alternative, would have favoured foreign companies, like Honda, who already had emissions below what would be achieved with a converter. If a converter were required, Honda would have to put one on anyway and bear the same costs. Oh yeah, and guess who held the patent for the catalytic converter? GM.

At one time, tobacco companies were embroiled in a civil dispute over selling a product that increased health care costs. They agreed to a settlement that increased their taxes as compensation. This decrease in profit drove smaller companies out of the market, and Big Tobacco saw their profit margins actually increase due to less competition and their new, monopolistic ability to push increased costs onto the customer.

So what about the VVSG? I haven’t seen the evidence, and I would welcome insight here, but I cannot see any justification for strong opposition to the VVSG by the large voting technology vendors for these same reasons. Any increased development costs and fees can be passed right back to the buyer (who are, ultimately, tax payers) in the form of a price increase, and the higher barrier to entry costs work to eliminate new vendors from entering the market and driving prices down through competition. The hard question the EAC needs to ask itself is what is more valuable in the long run: fostering innovation through competition or through strong-arming an oligopoly.

Moral Hazard

While the example of the requiring airbags seems illustrative of a categorically “good” thing, it ignores the tricky issue of moral hazard. While airbag and (the must better studied) seatbelt legislation will decrease the probability of fatality due to an car accident, this positive effect can be offset by people driving faster and taking more risks as a result of feeling more safe. While the addition of a seatbelt or airbag will certainly not turn us into maniacs, marginal increases in risky behaviour aggregated across an entire population can add up quickly. We might see less accidents if car manufacturers mounted a spear to the steering wheel, aimed at the driver’s heart.

While I don’t think moral hazard replicates as nicely in voting, there is a risk that stronger voting standards could lead to less diligent voters, poll workers, and vendors. E2E systems, in particular, struggle with moral hazard because our pitch is almost paradoxical: our systems are most trustworthy when no one trusts them (and thus everyone independently verifies the result).