Demand of direct democracy

The growing demand for referendum challenges the traditional model of representative democracy. In this paper we study under which conditions voters prefer a system of representative democracy to direct democracy. In direct democracies voters choose a policy among two alternatives, under uncertainty about which policy better fits the realized state of the world; in representative democracies voters select a candidate who, once elected, chooses a policy having observed which is the realized state of the world. Voters and politicians' payoffs depend on a common component which is positive only if the policy fits the state of the world, and on a private ideological bias towards one of the policies. In direct democracies voters are uncertain about the future state of the world, while in representative democracies they are uncertain about the degree of ideological bias of the candidates, even if they know towards which policy each candidate is biased. We show that representative democracy is preferred if (i) the majority of voters are pragmatic (the common component prevails), and (ii) society is ideologically polarized, meaning that the majority of voters are ideological (the private component prevails), but the median voter is pragmatic. Direct democracy is the preferred instrument for collective choices in societies in which the majority of voters and the median voter are ideological, implying that the majority of voters have the same ideological bias, as, for instance, it occurs when the populist rhetoric of people against the elite succeeds.