Political Resource Allocation: Benefits and Costs of Voter Initiatives

Abstract

This paper explores the benefits and costs of the voter initiative, a direct democracy device that allows voters to make policy decisions without involving their elected representatives. Previous research suggests that by introducing "competition" into the proposal process, the initiative leads to policies that are closer to the voter's ideal point. In our model, in contrast, the effect of the initiative is conditional on the severity of representative agency problems and the uncertainty about voter preferences. The initiative always makes the voter better off when representatives are faithful agents, but when voter preferences are uncertain, initiatives can cause "shirking" representatives to choose policies farther from the voter's ideal point. Our evidence shows that initiatives reduce state spending when Democrats control the government, when the tax base is vulnerable to "common pool" problems, and when citizens have diverse preferences.

JEL Classification: H1, H2, H3, H7