Direct democracy and resource allocation: Experimental evidence from Afghanistan☆
Introduction
Decentralization efforts in some developing countries have been undermined by the diversion of public resources by local elites (Bardhan, 2002, Bardhan and Mookherjee, 2006). Direct democracy, which promises to better align project resource allocation outcomes with public preferences, is one tool that has been used to address this problem (Matsuska, 2005, Matsusaka, 2004, Matsusaka, 1995). However, while recent evidence (Olken, 2010) shows that direct democracy can improve the legitimacy of allocation processes per se, it also casts doubt on whether direct democracy can substantively affect allocation outcomes. Uncertainty thereby exists as to whether direct democracy is an effective tool to reduce elite capture over the allocation of public resources.
This study draws on a field experiment conducted across 250 villages in Afghanistan to identify whether directly democratic procedures can limit elite influence, even in an environment where direct democracy conflicts with customary norms of local decision-making. In the experiment, half of the villages were randomly assigned to select local development projects by secret-ballot referenda, with the remainder assigned to select projects at public meetings convened by elected village development councils. The referendum procedure allocated funding to projects that received the most votes from villagers, while the meeting procedure allocated funding based on decisions made by development councils following the meeting. Both procedures employed an identical agenda-setting method, with the development council compiling the list of proposed projects after consultations with villagers.
In order to isolate the effect of direct democracy on allocation outcomes generally and on the ability of elites to realize their preferences specifically, we compare allocation outcomes with the ex-ante preferences of (non-elite) male villagers and with those of male elites. We find that male villagers' preferences are a significant determinant of allocation outcomes in both referenda and consultation meetings. However, the preferences of male elites matter only in consultation meetings. Projects selected by referenda are also located farther away from the houses of village headmen. The preferences of female elites, who are traditionally excluded from village-level decision-making, do not affect allocation outcomes regardless of the decision-making rules. Overall, our results indicate that direct democracy limits elite influence over resource allocation.
Theoretically, the welfare effects of reducing elite influence over resource allocation are ambiguous. Differences between elite and public preferences may reflect not only different interests but also informational advantages of elites (Labonne and Chase, 2009; Rao and Ibáñez, 2005; Owen and Van Domelen, 1998). It is thus feasible that direct democracy may reduce general welfare even while limiting elite influence. However, evidence provided by subjective measures of welfare shows that referenda improve villagers' assessments of their situation. This effect on subjective perceptions appears to be caused both by the process itself and by the reduction in elite influence. Specifically, referenda improve villagers' perceptions of the local economy and of the quality of local governance, even when project type is controlled for. Villagers' perceptions also improve when selected projects are less aligned with elite preferences. Objective measures of welfare, however, don’t align with the effects on subjective perceptions. In particular, referenda have no systematic effect on the speed of project implementation, the impact of projects on development outcomes, or on household income or consumption.
Research on direct democracy has examined effects on the size of government (Matsusaka, 2005; Funk and Gathmann, 2011), political participation and redistributive spending (Hinnerich and Pettersson-Lidbom, 2014), discriminatory local policies (Hainmueller and Hangartner, 2015), and happiness (Frey and Stutzer, 2005). Using experimental variations similar to those employed in this study, Olken (2010) finds a strong positive effect of the use of direct democracy in Indonesia on villagers' satisfaction, but no effect on allocation outcomes other than the location of women's projects. Our study contributes to the literature on the effects of political decision rules in general, and direct democracy in particular. We extend the analysis of Olken (2010) by increasing the sample size and examining the effect not only on resource allocation and subjective assessments of project quality, but also on the speed of project implementation, on project effectiveness, and on household welfare. Our results reinforce the finding of Olken (2010) that direct democracy can improve subjective outcomes, but differ from Olken (2010) in demonstrating that referenda can reduce the influence of elites over allocation outcomes.
This paper is divided into six sections: Section 2 describes the setting of the experiment; Section 3 describes the design of the experiment, sample, and data collection; Section 4 presents the methodology and results of the empirical analysis; Section 5 discusses the results; and Section 6 concludes.
Section snippets
Background information
The field experiment described in this paper was undertaken in coordination with the National Solidarity Program (NSP), a nationwide community-driven development program executed by the Government of Afghanistan. The following sections provide further details on NSP (Section 2.1) and the structures for local governance and decision-making in rural Afghanistan (Section 2.2).
Experimental design
This section discusses the randomization of allocation procedures in the 250 treatment villages in the evaluation (Section 3.1), while also detailing the sample (Section 3.2), and the phasing of the experiment and data collection (Section 3.3).
Data
We identify the effects of direct democracy on four sets of outcomes of interest: (i) degree of alignment between resource allocation outcomes and elite and non-elite preferences; (ii) location of projects relative to the houses of members of the village elite; (iii) subjective measures of economic welfare and of the quality of local governance; and (iv) project implementation and performance. The following sections provide further information on the sources of data on: ex-ante project
Results
The following sections report the effects of variation in project allocation procedures on: resource allocation outcomes (Section 5.1); allocation outcomes with respect to female preferences (Section 5.2); project location (Section 5.3); perceptions of villagers (Section 5.4); and project implementation and performance (Section 5.4).
Discussion of results
In theory, direct democracy moves allocation outcomes closer to the position of the median voter (Romer and Rosenthal, 1979). In so doing, direct democracy can resolve principal-agent problems that induce divergence between public preferences and the policy outcomes of representative democracies (Kau and Rubin, 1979, Kalt and Zupan, 1984, Peltzman, 1984). However, where divergence between policy and public preferences arises not because of differences in interests but due to information
Conclusion
This paper examines the effect of decision-making rules on resource allocation outcomes. Using data from 250 villages in Afghanistan, we compare allocation outcomes under direct democracy with outcomes under consultative procedures. Our findings indicate that direct democracy limits elite influence over policy outcomes, while consultative processes are more susceptible to elite capture. Direct democracy also improves perceptions of local governance and economic welfare, but has no impact either
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The authors would like to thank Claudio Ferraz, Phil Keefer, Ben Olken, Ekaterina Zhuravskaya, and seminar participants at Columbia University, NES, MIT, European Economic Association Congress, NBER Political Economy Meeting, IIES, and Paris School of Economics for helpful comments. The authors are indebted to Kirill Borusyak, Hamid Gharibzada, Chad Hazlett, Vera Mironova, and Maiwand Siddiqi for excellent research assistance and gratefully acknowledge the generous cooperation and assistance provided by Tariq Ismati and Abdul Rahman Ayubi, formerly of the National Solidarity Programme; Wais Barmak and Ehsan Zia, former Ministers of Rural Rehabilitation and Development; staff of AfghanAid, C.H.A., InterCooperation, IRC, NPO/RRRAA, Oxfam UK, and People-in-Need; and Philippe Dongier, Susanne Holste, Qazi Azmat Isa, Zishan Karim, Norman Piccioni, and Mio Takada of the World Bank. The study was financially supported by FAO, the World Bank, and the National Solidarity Programme. Ruben Enikolopov acknowledges financial support from the Ministry of Education and Science of the Russian Federation, Grant No. 14.U04.31.0002 and Deutsche Bank Membership at IAS. Fotini Christia acknowledges support from ARO MURI Award No. W911NF-12-1-0509. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors and should not be attributed in any manner to the World Bank, to its affiliated organizations, or to members of its Board of Executive Directors, or the countries they represent. The World Bank does not guarantee the accuracy of the data included in this publication and accepts no responsibility for any consequence of their use.