Lipset Reconsidered: A Rational Theory of the Stability of Democracy

This paper studies the endogenous emergence of political regimes, in particular democracy or oligarchy, in heterogeneous societies in which institutions do not ensure political commitments. Democracy emerges if the ruling coalition that makes political decisions represents the majority of individuals of the population, while oligarchy emerges when the political decisions are made by a minority of the population. The findings show that for any economic environment there exists a distribution of resources such that democracy is a possible political outcome within a heterogeneous society, whereas the opposite does not hold. The model also delivers results on the stability of democracy. Variations in inequality across several dimensions due to unbalanced technological change, immigration or changes in the demographic structure can reduce the scope for democracy or may even lead to its breakdown.