Direct Democracy and Responsibility Substitution

In practice, the most relevant question for direct democracy is not whether it could advantageously replace representative democracy, but whether it can be combined with it to improve political outcomes. We find that, by reallocating some political power to the population, direct democracy significantly affects the incentives, selection, and reelection prospects of politicians. When citizens can correct politicians’ mistakes, elected representatives have a lower incentive to search for good policies, which affects citizens’ ability to screen competent politicians. Lowering the cost of direct democracy institutions induces a negative spiral on politicians’ incentives and may even reduce voters’ welfare. We study the effect of direct democracy institutions on reelection probabilities and politicians’ competence, and show that our theory’s main implications are consistent with empirical evidence from U.S. states. Word Count: 8079.