Diversity and the Power of the Elites in Democratic Societies: A Model and a Test
London School of Economics & Political Science (LSE) - Suntory and Toyota International Centres for Economics and Related Disciplines (STICERD); Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics
London School of Economics & Political Science (LSE) - Department of Economics
LSE STICERD Research Paper No. EOPP018
This paper analyzes whether political outcomes in local democracies are determined by the preferences of the median - typically poor - agents or whether they reflect the wishes of the wealthy elites. A model shows that when politicians belonging to different groups can form coalitions, the wealthy elites' influence on policy choices is endogenously higher when there is diversity in preferences among the poor. In line with the theoretical predictions, the pattern of public good provision by local governments in Indonesia reveals that when individuals have different preferences — here due to different ethnicities — democratic policy outcomes are closer to the preferences of the elites, rather than the preferences of the poor majority.
Number of Pages in PDF File: 36
JEL Classification: D61, D62, D63, H21, H23, K32
Date posted: November 30, 2010