The unanimous voting rule is not the political equivalent to market exchange

The unanimous voting rule is often viewed as analogous to voluntary market exchange. This paper demonstrates that when third-party pecuniary effects exist, this analogy breaks down because unlike markets, unanimous voting requires compensation for these effects. Thus, efficient market outcomes typically will be rejected by the unanimous voting rule. Even when transactions costs are low enough to make compensation feasible, the political outcome under unanimity will differ from the market outcome. The distributional effects of unanimity provide the incentive for people to substitute rent-seeking behavior for productive activity, and reduce the incentive for productive change, providing additional reasons why a less-than-unanimous voting rule may be optimal when resources are to be allocated politically.