London School of Economics EOPP: Economic Organisation and Public Policy Programme LSE
EOPP: Economic Organisation and Public Policy Programme

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Diversity and the Power of the Elites in Democratic Societies: A Model and a Test.

Oriana Bandiera, Gilat Levy, August 2010
Paper No' EOPP 018: | Full paper (pdf)
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This Paper is published under the following series: Economic Organisation and Public Policy Discussion Papers
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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.