Constitutions and Policy Comparisons: Direct and Representative Democracy when States Learn from Their Neighbours

Abstract

Voters in democracies can learn from the experience of neighbouring states: about policy in a direct democracy (policy experimentation), about the quality of their politicians in a representative democracy (yardstick competition). Learning between states creates spillovers from policy choice, and also from constitutional choice. I model these spillovers in a simple principal-agent framework, and show that voter welfare may be maximized by a mixture of representative and direct democratic states. Because of this, empirical work examining voter welfare under direct democracy may need to be reinterpreted. Also, I show that the optimal mix of constitutions cannot always be achieved in a constitutional choice equilibrium involving many states.