Fairness and Direct Democracy

Abstract

The median voter model (direct democracy) has wide applicability, but it is based on selfish voters i.e. voters who derive utility solely from 'own' payoff. The recent literature has pointed to fairness and concern for others as basic human motives that explain a range of economic phenomena. We examine the implications of introducing fair voters who have a preference for fairness as in Fehr and Schmidt (1999). Within a simple general equilibrium model, we demonstrate the existence of a Condorcet winner for fair voters using the single crossing property of voters’ preferences. In a fair voter model, unlike a selfish voter model, poverty can lead to increased redistribution. Mean preserving spreads of income increase equilibrium redistribution. Greater fairness leads to greater redistribution. The introduction of selfish voters in an economy where the median voter is fair can have a large impact on the redistributive outcome. An empirical exercise using OECD data illustrates the potential importance of fairness in explaining redistribution.Redistribution; other regarding preferences; single crossing property; income inequality; American Exceptionalism