DP7985 Diversity and the Power of the Elites in Democratic Societies: A model and a test.

Author(s): Oriana Bandiera , Gilat Levy

Publication Date: September 2010

Keyword(s): democracy , public goods

JEL(s): D72 , h41 , o12

Programme Areas: Development Economics , Public Policy

Link to this Page: www.cepr.org/pubs/dps/DP7985.asp.asp

This paper analyzes whether political outcomes in local democracies are determined by the preferences of the median -typically poor- agents or whether they reflect the wishes of the wealthy elites. A model shows that when politicians belonging to different groups can form coalitions, the wealthy elites' influence on policy choices is endogenously higher when there is diversity in preferences among the poor. In line with the theoretical predictions, the pattern of public good provision by local governments in Indonesia reveals that when individuals have different preferences --here due to different ethnicities-- democratic policy outcomes are closer to the preferences of the elites, rather than the preferences of the poor majority.