The Impact of Direct Democracy on Society - Universität St.Gallen

– 142 –1 Introduction 148<strong>Direct</strong> democracy is conjectured to lead to an allocation <strong>of</strong> resources that comes closer to thepreferences <strong>of</strong> the median voter than does that in a representative democracy. In contrast totraditional economic theory, however, this study assumes that the median voter is subject tobounded rationality. Based on these two assumptions particularly, it is hypothesized that thevoter (1) prefers that less money be spent on crime prevention measures and (2) favorsprotection against property crime over fighting violent crime. In this contribution, thesehypotheses are developed in detail and empirically tested for the case <strong>of</strong> Switzerland, acountry with strong variation in the degree <strong>of</strong> direct democracy and public safety at thecantonal level.Based on an extensive review <strong>of</strong> the literature, it appears that this investigation is one <strong>of</strong> thefirst to combine and empirically test the median voter theorem <strong>of</strong> public choice with thetheorem <strong>of</strong> bounded rationality developed by behavioral economists and economicpsychologists. It is also the first analysis <strong>of</strong> an economic model <strong>of</strong> crime for Switzerland usingan econometric panel method for cantonal-level data that employs a rich set <strong>of</strong> explanatoryvariables 149 .<strong>The</strong>oretical models <strong>of</strong> political economy demonstrate that institutions <strong>of</strong> direct democracylead to an allocation <strong>of</strong> goods and resources that comes closer to the median voter'spreferences than the allocation achieved in a representative democratic system. Empiricalstudies for both the U.S. and Switzerland provide evidence that the provision <strong>of</strong> public goodsis more efficient in direct democracies and government spending is lower. In the theoreticalmodel world <strong>of</strong> political economy, the median voter is assumed to be a perfectly rationalhomo economicus who, on average, makes unerroneous predictions <strong>of</strong> event probabilities. Onthe other hand, economic psychologists have found that the rationality <strong>of</strong> an average humanbeing is bounded: i.e., an individual’s predicted probabilities differ systematically from actual148 A preliminary version <strong>of</strong> this paper was presented at the conferences <strong>of</strong> the British Society <strong>of</strong> Criminology,(6-9/07/2004), Portsmouth, GB, the European Society <strong>of</strong> Criminology, (25-29/08/2004), Amsterdam,Netherlands, the European Association <strong>of</strong> Law & Economics, Zagreb, Croatia, (23-25/09/2004), and the 56 thAnnual Meeting <strong>of</strong> the American Society <strong>of</strong> Criminology, Nashville, (17-20/11/2004). I thank ReinerEichenberger, Simon Gächter, Martin Jäggi, Gebhard Kirchgässner, Friedrich Schneider and conferenceparticipants for helpful comments and suggestions.149 Using Swiss data, a purely time-series analysis can be found in FUNK and KUGLER (2002, 2003), who used asexplanatory variables only two deterrents and either the number <strong>of</strong> unemployed (2003) or lagged crime rates(2002). A partial correlation analysis for two cross sections <strong>of</strong> 1960 and 1970 can be found in ZWICKY (1982)