What a Nobel laureate can teach us about the economics of electoral bonds

livemint.com:

₹10 million. They can be bought by individuals or companies via cheques or digital payments from the State Bank of India. The buyer can donate the bonds to any political party that has received at least 1% of the vote share in the previous Lok Sabha or a state assembly elections.

Although neither the donor nor the political party have to disclose the donor’s identity, as the Supreme Court said, the government of the day can easily find out their identities. The political party in office thus enjoys access to information that its political adversaries don’t, giving rise to the scope for “retribution", as the CJI said. This is a consequence of the asymmetry of information between the seller (the political party in office) and the buyer (the donor).

What consequences other than retribution are to be expected from this? Of the total money raised through electoral bonds between March 2018 and July 2019, the highest denomination accounted for more than 90%. Campaign finance of this scale cannot come from small donors; It’s likely coming – directly or indirectly – from high-net-worth individuals and corporates. It’s naïve to expect that a business tycoon, with an eye on the company’s stock price and profit margins, will simply write a political party a cheque out of gratitude for good governance and policies, without negotiating clear pay-offs.

Political funding and corporate lobbying go hand in hand in every country, giving rise to quid-pro-quo, favouritism, bending of rules, abuse of power, and tailor-made policies that give donors an edge over competitors. This disrupts the level playing field, leading to loss of welfare for citizens, crony capitalism, bribery, corruption and money laundering. In the worst-case scenario,