Democracy, collective action and intra-elite conflict

• Published in: Journal of public economics Vol. 93; no. 9; pp. 1078 - 1089
• Main Authors: Ghosal, Sayantan, Proto, Eugenio
• Format: Journal Article
• Language: English
• Published: Elsevier B.V 01.10.2009; Elsevier
• Series: Journal of Public Economics
• Subjects: Bargaining; Coalition formation; Coalitions; Collective action; Comparative analysis; Conflict; Democracy; Democracy Conflict Collective action Coalition formation Party formation Bargaining Risk-sharing; Elites; India; Oligarchy; Party formation; Power relations; Risk-sharing; Uncertainty; Western Europe; D74; O12; Party formation; Conflict; Bargaining; Democracy; Coalition formation; H11; Collective action; Risk-sharing
• ISSN: 0047-2727; 1879-2316
• DOI: 10.1016/j.jpubeco.2009.05.003

We analyze a model where there is uncertainty about the future power of two ex-ante symmetric elites to appropriate surplus, and ex-ante surplus sharing agreements are not binding. We show that in an oligarchy, the stronger elite appropriates the entire available surplus, whereas a democracy results in a more balanced surplus allocation between the two elites. In a democracy, the newly enfranchised non-elite organize to act collectively, so that the weaker elite can credibly threaten to form a coalition with the organized non-elite against the stronger elite. Such a threat ensures that the more balanced surplus sharing proposal chosen by majority voting is renegotiation-proof. Therefore, sufficiently risk-averse elites unanimously choose democracy as a form of insurance against future imbalances in relative power. We emphasize that franchise extension to, and low cost of organizing collective political activity for, the non-elite are both necessary features of a democracy. Our formal analysis can account for the stylized facts that emerge from a comparative analysis of Indian and Western European democracies.