The hidden cost of direct democracy: How ballot initiatives affect politicians' selection and incentives

Citizen initiatives and referendums play an important role in modern democracies, from treaty ratifications in the European Union to gay marriage in California, to the control of foreign workers in Switzerland. Departing from the classic opposition between direct and representative democracy, we study the equilibrium effects of direct democracy institutions on the incentives and selection of elected officials. We find that facilitating direct democracy induces a negative spiral on politicians' role and contribution to society, which may dominate any direct benefit. The theory offers predictions on reelection probabilities and politicians' performance consistent with recent evidence from the US states.