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

– 143 –average probabilities. An optimism bias induces the underestimation <strong>of</strong> the subjectiveprobability for a bad event to occur, with, according to the literature on the availabilityheuristic, the bias becoming stronger when an event is less frequently observed than otherevents.This study combines economic and psychological approaches by applying themsimultaneously to the supply <strong>of</strong> the public good, 'public safety', defined by the level <strong>of</strong> crimein a specific region. Depending on the type <strong>of</strong> crime, some crimes are committed more <strong>of</strong>tenthan others. Based on this observation and applying the 'optimism bias' theory and'availability heuristic' <strong>of</strong> economic psychology, it is conjectured that voters prefer theprevention <strong>of</strong> more frequently occurring property crime relative to less frequently occurringviolent crime. <strong>The</strong>refore, it is hypothesized that direct democratic systems will reallocategiven budgetary resources for police issues in favor <strong>of</strong> the protection <strong>of</strong> property at theexpense <strong>of</strong> personal integrity. Further, since studies in economic psychology have shown thatthe true average likelihood for the whole society is also systematically underestimated, it isalso conjectured that fewer financial means will be allocated through institutions <strong>of</strong> directlegislation to crime prevention and crime protection measures.This study also assumes that governmental and administrative decision makers are better atforecasting than the common citizen, because empirical investigations by economicpsychologists have detected that debiasing strategies – linked to bureaucratic procedures,continuous training, statistical information and continuous feedback – may reduce theunderestimation <strong>of</strong> true probability. Because these findings seem consistent with the initialhypotheses, it is further conjectured that in more representative democracies, more resourceswill be devoted to public safety in general and, more specifically, available means allocatedbetween several crimes will reflect the actual probability <strong>of</strong> their occurrence more closelythan in direct democracies.<strong>The</strong>se hypotheses are tested using a synthetic panel <strong>of</strong> Swiss data on cantonal policeexpenditure and crime rates between 1986 and 2001. <strong>The</strong> regressors are selected according tothe economic model <strong>of</strong> crime and public choice models <strong>of</strong> government expenditure. Inanticipation <strong>of</strong> the empirical results, support is found for the boundedly rational median votertheorem: First, subfederal police expenditure is observed to be dampened by the degree <strong>of</strong>direct democracy, which subsequently translates also into a lower relative number <strong>of</strong> cantonal