The hidden cost of direct democracy: How ballot initiatives affect politicians’ selection and incentives

Date01 July 2017
AuthorCarlo Prato,Bruno Strulovici
Published date01 July 2017
DOI10.1177/0951629816650762
Subject MatterArticles
Article
The hidden cost of direct
democracy: How ballot
initiatives affect politicians’
selection and incentives
Journal of Theoretical Politics
2017, Vol. 29(3) 440–466
©The Author(s) 2016
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DOI:10.1177/0951629816650762
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Carlo Prato
Georgetown University
Bruno Strulovici
Northwestern University
Abstract
Citizen initiatives and referendums play an important role in modern democracies, from treaty
ratifications in the European Union to gay marriage in California, to the control of foreign workers
in Switzerland. Departing from the classic opposition between direct and representative democ-
racy, we study the equilibrium effects of direct democracy institutions on the incentives and
selection of elected officials. We find that facilitating direct democracy induces a negative spi-
ral on politicians’ role and contribution to society, which may dominate any direct benefit. The
theory offers predictions on reelection probabilities and politicians’ performance consistent with
recent evidence from the US states.
Keywords
Direct democracy; initiatives; political agency; referendum
1. Introduction
Direct democracy institutions, such as citizen initiatives and referendums, play an impor-
tant role in regimes otherwise based on representative democracy: In the period 1990–
2010 almost 800 ballot initiatives were proposed in US states (against the 433 of the two
preceding decades), of which roughly 45% were approved.1Since 1990, referendums
took place in 91 countries, including 30 European ones (Kaufmann and Waters, 2004).
Following the collapse of the Soviet Union, 27 of the 30 newly established democracies
adopted direct democracy institutions. Since 2012, direct democracy is also available at
the European Union level via the European Citizens’ Initiative.
Corresponding author:
Carlo Prato, Georgetown University, 3700 O St NW, Intercultural Center, Washington, DC District of
Columbia 20057, USA.
Email: carlo.prato@georgetown.edu
Prato and Strulovici 441
Understanding the impact of these institutions on the democratic process is thus of
prime importance. Scholars of direct democracy, however, have traditionally focused on
two comparatively narrow themes. One, dating back to Plato’s Republic (Book VIII),2is
the tyranny of the majority: Larger social groups can systematically impose their prefer-
ences on minorities. The other theme emphasizes voters’ lack of wisdom and expertise
(Campbell et al., 1960; Maskin and Tirole, 2004).
Crucially, both arguments – as well as important counter-arguments (Bowler and
Donovan, 1998; Garrett and McCubbins, 2008; Lupia, 1994) – focus on a single pol-
icy decision: they do not study how direct democracy affects politicians’ incentives and
the overall democratic process. Clearly, not all decisions can be made through initiatives
and referendums. In modern, hybrid democracies (Garrett, 2005), citizens still delegate
many decisions to elected representatives. This paper departs from the existing literature
by studying how direct democracy on some issues affects the quality of politicians’ deci-
sions on all issues. This question seems especially important in light of the growing body
of empirical work on the topic.3
Most theoretical studies of the interaction between elected officials’ behavior and
direct democracy (Matsusaka, 1992; Gerber, 1996; Matsusaka and McCarty,2001) focus
on the following intuitive point: Allowing direct democracy typically improves the con-
gruence between policies and the electorate’s preferences. This intuition is in line with
recent evidence on issues such as abortion rights and death penalty (Matsusaka, 2010),
as well as with historical accounts of the origins of direct democracy in the US (Cronin,
1989), where citizens’ demand for increased ability to control potential abuses and
failures of representative democracy played a key role.4
Despite its intuitive appeal, the previous argument is incomplete: To assess how effi-
cient direct democracy is at preventing political failures, one should also consider how
direct democracy affects politicians’ equilibrium incentives, expertise, and selection. If
direct democracy is effective at correcting politicians’ mistakes, how does that affect the
frequency of such mistakes? And how does it affectthe risk of mistakes along dimensions
which are not amenable to direct democracy?
As a first step towards answering these questions, this paper analyzes a principal-
agent model of electoral control. The expertise (built on costly information acquisition)
and competence of an elected official are endogenously determined through electoral
selection and incentives. Direct democracy is modeled as citizens’ ability to amend
some policies chosen by their elected official. The main finding is that increasing vot-
ers’ amendment power undermines their ability to credibly reward expertise acquisition
by an incumbent and to learn about her competence. Besides its normative implications,
addressing the equilibrium effects of direct democracy on elected officials’ incentivesand
behavior also helps to explain recent empirical evidence (Bali and Davis, 2007; Dyck,
2009; Dyck and Lascher, 2009; Kelleher and Wolak, 2007; Rydberg, 2010) that is hard
to reconcile with previous theories.
1.1. Direct democracy and responsibility substitution
In the model, a politician’s competence level affects two dimensions of policymak-
ing. One dimension can be amended through direct democracy. Examples include eco-
nomic decisions such as banning golden parachutes for CEOs or limiting property taxes

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