Representative Democracy with or without Elections: An Economic Analysis

We compare the quality of policies set by a representative in the face of complexity/uncertainty under an electoral system where the representative is chosen out of the set of politicians versus a system where the policy-setter is randomly selected from the 'demos', that is, the subset of citizens willing to serve as representatives if selected by lot. We do so by recognizing that the differences between the two systems affect the incentives of citizens to participate in the selection process in place. We find that for high enough returns from being the representative, drawing the decision-maker from the demos dominates elections because higher returns attract more able-for-the-job citizens while the probability of winning elections is decreasing in the number of politicians/candidates. Importantly, we also find that an increase in the complexity of policy issues makes it more likely that drawing the representative from the demos dominates elections since it reduces the probability of being selected under elections and thereby the incentives of more able-for-the-job citizens to become politicians. Calibrating our model we show that selection by lot is more likely to dominate elections in terms of the quality of policy decisions in countries with high income inequality as compared to those with low inequality.