Special Interest Influence Under Direct Versus Representative Democracy

Abstract

This paper shows that when voters regulate business directly by referendum, the overall picture looks nothing like traditional capture theory. To contrary, based on both qualitative and quantitative evidence, citizen-initiated laws typically appear to transfer wealth from businesses, and are less favorable than laws proposed by legislators. Key findings include: (i) anti-business laws substantially outnumbered pro-business laws among the 2,610 citizen initiatives in the U.S. states since 1904; (ii) business contributions to California ballot measures during 2000-2020 were typically defensive, seeking to prevent passage of hostile laws rather than gain passage of favorable laws; (iii) both proposed and approved laws were more likely to be anti-business when originating with citizens rather than the legislature; and (iv) corporations experienced significant abnormal stock returns associated with passage/failure of propositions that they or their competitors supported/opposed, indicating that real wealth transfers were at stake.