Ratification through referendum or parliamentary vote: When to call a non-required referendum?

European Journal of Political Economy 23 (2007) 674 – 692 www.elsevier.com/locate/ejpe

Ratification through referendum or parliamentary vote: When to call a non-required referendum? George Tridimas ⁎ University of Ulster, School of Economics and Politics, Shore Road, Newtownabbey, Co. Antrim, BT37 0QB, UK Received 27 April 2006; received in revised form 25 September 2006; accepted 25 September 2006 Available online 1 December 2006

Abstract The paper examines the choice of an incumbent government to call either a non-required referendum or a parliamentary vote to ratify legislation, when there is uncertainty about the preferences of voters and elected representatives. Winning a referendum confers different gains from winning a parliamentary vote but requires different levels of effort to attract support. Differences in the preferences of the majority of voters and representatives, personal support for the incumbent and parliamentary party discipline emerge as determinants of the decision to call a non-required referendum. © 2006 Elsevier B.V. All rights reserved. JEL classification: D72; D78 Keywords: Non-required referendum; Parliamentary vote; Spatial voting under uncertainty; Incumbent versus opposition

1. Introduction Settling important constitutional questions by referendum is common in democratic countries. Constitutional amendments around the world and ratification of international treaties in the European Union have been decided by referenda. Switzerland and the USA, at respectively the canton and state levels, have a long history of deciding important policy decisions by means of direct rather than representative democracy. It is unsurprising that important legislation is ratified by referendum when the constitution so mandates. However, why do governments call a referendum to approve legislation when this is not required by the constitution? European integration illustrates the relevance of non-required referenda. During the period 1957–2006, out of a total of 43 integration referenda, 23 were not constitutionally required but ⁎ Tel.: +44 28 90368273; fax: +44 28 0366847. E-mail address: [email protected]. 0176-2680/$ - see front matter © 2006 Elsevier B.V. All rights reserved. doi:10.1016/j.ejpoleco.2006.09.019

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were called at the discretion of the incumbent government; 18 of these 23 resulted in a prointegration vote as the incumbent government had sought. France has held three EU-related nonrequired referenda, all initiated by the President of the Republic. The UK approved EEC membership in 1975 in a non-required referendum, the only national UK referendum thus far. In 2003, seven of the nine referenda held by the new entrants to approve membership were not required.1 Again, none of the four referenda held in 2005 by Spain, France, the Netherlands, and Luxembourg to ratify the EU Constitutional Treaty were constitutionally mandated.2 See the Appendix for the relevant details of the EU referenda.3 Why does the government choose to call a referendum rather than pass legislation through parliament, despite the fact that the constitution permits to do the latter? After all, the outcome of a referendum that polls the entire electorate is less predictable than a parliamentary vote, where the incumbent typically enjoys the support of the majority of elected representatives. Why does the incumbent choose to risk defeat in a referendum rather than rely on his parliamentary majority? This question is the focus of the present study. In politics, some issues cause deep intra-party splits between the elected representatives of the same party rather than inter-party divisions amongst different parties. Constitutional issues, which concern questions of governance and national sovereignty of a state, are a prime example. It is then unlikely that the standard system of parliamentary politics will be able to resolve all those issues. On the contrary, it is more likely that the leader of the party in office will call a referendum to decide them.4 Ratifying changes to constitutional arrangements in a referendum confers legitimacy to their adoption (or rejection) by taking the decision away from parochial parliamentary majorities and putting it into the hands of the citizenry.5 Earlier scholarship has noted the partisan advantage that calling a referendum confers to the incumbent. Bogdanor writes: “In general, where the government has discretion as to whether to call a referendum, the referendum will strengthen the government… Where the power to call a referendum lies in the hands of government, it is likely to prove a tactical weapon in strengthening its powers” (1994, p. 31). Similarly, Hug and Sciarini (2000) comment: “First, a government might use a referendum to strengthen its own position. It can do so by attempting to gloss over internal divisions or by creating divisions in parties of the opposition…Second, a referendum 1 The determinants of the ‘Yes’ votes in the 2003 referenda are studied in detail in Sczcerbiak and Taggart (2004) and Doyle and Fidrmurc (2006). 2 On the 2005 French referendum, see Aboura (2005), Franck (2005a,b), Jérôme and Vaillant (2005) and Lemmenicier (2005) in the Symposium of the European Journal of Political Economy, and Ivaldi (2006). 3 Queries have been raised about the nature of votes in EU referenda. Specifically, voters may not care much about “Europe” but may treat referenda on integration like “second order” national elections and use the opportunity to reward or punish the conduct of the party in office. Then the referendum outcome will be shaped by the stance of the parties on the issue and the popularity of the government rather than by intrinsic individual preferences for integration. See Schneider and Weitsman (1996), Franklin et al. (1994) and Gabel (1998). Recently a more synthetic view has gained currency (Franklin, 2002). Notably, when integration is an issue of low salience to voters, a referendum tests more the standing of the government than voter support for integration; however, if integration is an issue of high salience the outcome of the referendum will depend on the positions taken by the government and the opposition as well as the preferences of voters. 4 See Bogdanor (1994). In addition he identifies moral issues as issues to be resolved by referenda. Moral issues concern questions of conscience and “right” or “wrong”, such as divorce and abortion, and may give rise to intense feelings amongst many voters causing divisions within the same party (see also Matsusaka, 2005). 5 However, this argument does not automatically justify the referendum as the best way to amend a constitution. For example, noting that choosing constitutional arrangements requires compromises on a multitude of issues where information and specialised expertise may be necessary, Mueller (1999) suggests that the election of a constitutional convention may be a useful alternative to amend a constitution.

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could be held to legitimize a given proposal” (Hug and Scarini, 2000, p. 8–9). Such notions of tactical advantage and political gain are too vague to allow a complete understanding of the behaviour of the incumbent. They fall short of offering a formal framework to generalise the underlying intuition. Nor is the extensive formal literature of referenda suitable to tackle the question of non-required referenda called by the government. For example, Hug (2004) concludes his study on the occurrence of various types of referenda by pointing to “… a disconcerting result… namely that the government should never call a referendum on a voluntary basis” (2004, p. 344). It is the aim of this work to provide such a formal framework. In common with the existing theoretical literature, at the core of the present study is the uncertainty which surrounds the outcome of different methods of passing legislation. Specifically, some issues cause deep differences amongst the members of the same party. The incumbent may then be unsure of the voting intentions of the elected representatives of his own governing coalition, while he may also expect that his proposed legislation will be supported by voters who do not necessarily vote for his party in parliamentary elections. Attracting the support of representatives in a parliamentary vote, or of ordinary voters in a referendum, requires to expend resources both pecuniary and non-pecuniary. Similarly, the political benefits of passing legislation by a vote of the legislature may differ from the benefits of passing legislation by the direct approval of voters in a referendum. The choice of the method of ratifying legislation will then depend on comparing the expected net gains from victory in a referendum and a parliamentary vote. The next section offers a selective review of the existing literature on referenda. Section 3 presents a formal model of the choice of the incumbent to seek ratification by calling a referendum or a vote in parliament. The model is based on the spatial decision framework and studies the interactions between the incumbent and the opposition in an environment where the expected outcome of the two alternative methods of ratification depends on policy preferences, the utility from winning a vote and the effort expended by the incumbent and the opposition to secure the support of voters and representatives. Section 4 concludes. 2. On the comparative merits of policymaking by referendum Theoretical and empirical research on referenda has proliferated over the last decade. As this literature is surveyed elsewhere – see amongst others, Mueller (1996), Feld and Kirchgässner (2000) and Matsusaka (2005) – there is no reason to provide a survey here. It suffices to indicate how the present study links with previous work. The existing literature focuses on the choice between policy making by referendum and by electoral representation. A range of complementary questions have been investigated, notably, why citizens may decide to resolve some issues of collective choice by a referendum vote rather than indirectly through their elected representatives; how well-informed voters are; what factors determine referendum outcomes (including voter preferences and the financial muscle of interest groups); and whether, in comparison to representative democracy, policy outcomes in referenda are more closely related to the preferences of the majority of voters. Policy making by elected politicians possesses two important advantages. First it minimizes decision costs of reaching agreements as it restricts the process of negotiation to a small number of legislators. Second, it achieves superior (welfare increasing) outcomes as policy decisions are made by elected politicians, who specialise in acquiring the relevant information and expertise on policy issues, rather than by ignorant voters. On the other hand, indirect democracy may be plagued by problems of agency, agenda control and logrolling. Agency problems arise because of

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weak controls of voters on politicians, who may then implement policies which best suit their own interests. Agenda control problems arise when legislators monopolize the policy issues to be decided, the order and form of policy decisions. In logrolling legislators trade votes in one project to secure a favourable vote in another project, which may result in an inefficiently large level of taxation to finance the sum of public expenditure projects. These problems are largely absent under direct democracy. Moreover, if the information required on a policy issue is widely dispersed across voters, or if the decision relates to a moral issue, which depends on personal values, and there may not be a single “right” or “wrong” answer, involving the entire electorate in policy making may result in a superior outcome (welfare increasing) than representative democracy. Overall, the greatest benefit of direct democracy is then that it secures policy outcomes preferred by the majority of voters.6 In pursuit of a systematic understanding, scholars usually draw attention to the institutional characteristics of a referendum.7 In the first instance this refers to whether the referendum is binding, in which case the authorities will have to implement the policy chosen by the popular vote, or the referendum is simply consultative. Note that in practice a referendum may be formally consultative, but become effectively binding when political parties of both government and opposition declare that they will abide by the popular vote. A consultative referendum records popular preferences but does not decide an issue. However, it may be politically suicidal for parties to ignore the will of voters. Alternatively, if voters know that their preferences will not decide an issue, they may not bother to express their preferences, robbing the referendum of any value. The present study focuses on binding referenda. A second useful classification is whether a referendum is called to decide a constitutional issue (that is, one which relates to the rules by which policy is made), or a post-constitutional issue (that is, one which concerns the passage of ordinary laws, like taxation and public expenditure).8 A third most significant distinction is whether or not the constitution mandates that a certain issue is put to the direct approval of the voters in a referendum, in which case the government has no option but to call a referendum; this is the required referendum. If a referendum is not required, then an actor as provided by the constitution may force one. Three types of non-required referenda are distinguished. (a) A nonrequired referendum called by the opposition (which includes political parties in the parliament as well as interest groups outside the parliament) on a policy adopted by the government. (b) A nonrequired referendum on a policy proposed by the opposition, or another actor like an organization or a group of citizens. Examples of this category are popular initiatives, by which a specified minimum number of voters can force a public vote on a policy, and the recall referendum, a procedure by which voters can remove an elected official from office. (c) A non-required referendum called by the government itself. This type of non-required referendum is also referred to as a “plebiscite” or as “passive” referendum (Christin and Hug, 2002, p. 591). Amongst the countries with constitutional provisions for this kind of referendum are Austria, Cameroon, Denmark, France, Greece, Ireland and Tunisia (see Hug, 2004). As indicated, the existing literature has focused on required referenda and the first two types of non-required referenda, to the neglect of the non-required referendum called by the government. 6

For exceptions to this, see Matsusaka and McCarty (2001) and Kessler (2005), who identify circumstances where representation leads to superior outcomes to direct voting and is preferred by the majority. 7 See for example Mueller (1996) and Christin and Hug (2002). 8 In this context, Mueller (1996) shows that an informed comparison of the merits of referendum and parliamentary votes requires accounting for the form of the parliamentary system, two-party or multi-party system, and the size of majority required to pass laws.

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Based on the previous classification, Hug and Tsebelis (2002) offer a detailed cross-country comparison of institutional provisions about referenda and study how these provisions may affect the stability of the policy outcome and the role of voter preferences in affecting policy outcomes. They consider referenda as introducing an additional veto player (an actor whose consent is required to change the status quo) on the collective choice made by the elected representatives. They show that the possibility of calling a referendum forces the policy outcome to be closer to the preferences of the median voter. Hug and Sciarini (2000) examine how the institutional characteristics of a referendum (whether required or non-required), may affect the outcome of the vote. They argue that when the government calls a referendum even though it is not required to do so, the supporters of the governing parties treat the vote as a kind of confidence vote and tend to support the recommendation of the incumbent. However, the incentive to vote for the incumbent is less strong if the referendum is constitutionally mandated, since in a mandatory referendum a government supporter who votes against the proposal of the government may simply signal his opposition to the specific policy proposed by the government (rather than the government). Using data from referenda on European integration, they report empirical estimates in support of these theoretical arguments. Similarly, Hug (2004) shows that differences in institutional arrangements affect both the occurrence of referenda and the outcome of public policy.9 Missing from the literature is an investigation of the question of the incumbent's choice to call or not to call a non-required referendum to pass legislation. It is to this task that we turn to in the next section. In common with recent literature, uncertainty in our model arises from incomplete knowledge about voter preferences. However the similarities end here. The literature focuses on the comparative merits of direct and indirect democracy from the viewpoint of voters. Matsusaka and McCarty (2001) compare policy making by elected politicians against initiatives triggered by interest groups assuming that they are both ignorant about the ideal point of the median voter. Similarly, in Kessler's (2005) model of citizens–candidates, uncertainty exists because of incomplete information about voter preferences and because of stochastic policy outcomes. However, neither of these works studies explicitly the competition between government and opposition. Hug (2004) addresses this issue in a setting of asymmetric information, but in a way which lacks generality. He assumes that the government is uncertain about the preferences of the median voter, while the opposition, which is assumed to force a referendum, knows the ideal point of the median voter with certainty. His justification is that the opposition has strong incentives to learn the preferences of voters in a particular issue, while the government must address several issues simultaneously. The focus of the present study is competition between the incumbent and the opposition in a more general setting, where uncertainty arises because both the incumbent and the opposition have incomplete information about the preferences of both the voters and those of their elected representatives. 3. A formal model of ratification 3.1. Ratification via referendum For concreteness, we assume that a decision on a constitutional amendment has to be made and employ a single dimensional spatial decision framework under a simple majority rule. We 9 He shows that when the constitution provides for the opposition to call a referendum on its own policy proposal, then referenda are more likely to occur (but as the cost requirement of the referendum increases, the likelihood of calling one decreases), and that policy outcomes will reflect more closely the preferences of the voters. Testing these theoretical predictions with two samples, one from the States of the USA the other from an international sample, he reports empirical results in support of the hypothesis.

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envisage a parliamentary democracy with two players, the incumbent denoted by I and the opposition denoted by O. The incumbent is the leader of the governing political coalition. The opposition is the politician who leads the parties excluded from the governing coalition. The players are assumed to be concerned with both the policy outcome and winning the vote per se. That is, they have policy preferences and derive utility from winning the vote. Let A and B denote the ideal policy points of the incumbent and the opposition respectively. Let G denote the policy introduced by the incumbent. G is assumed to have been determined at an earlier stage, like international negotiations; its size is exogenous to the game analysed here. For example, the government of the country negotiates entry to the European Union, or a revision of the founding treaties of the EU. Even though at the negotiation stage there may be some leeway concerning the terms of entry, or the adjustment period for harmonization of policies, the new entrant has to adopt the whole body of European legislation. Thus, when the government of the member-country seeks ratification of the treaty of entry (or the like), the choice is one of yes-or-no, rather than a selection from a continuous set. In other words, at the ratification stage the incumbent no longer controls the size of G. In general we allow for A ≠ G; that is, given the compromises struck in negotiating legislation, the constitutional amendment introduced by the incumbent may differ from his ideal point. Similarly, the proposed legislation differs from the ideal point of the opposition, B ≠ G. For convenience, but without loss of generality, it may be assumed that B < A. We first analyse the referendum game. In general, the incumbent expects that some, but not necessarily all, voters who voted for his or her party in the parliamentary election will also support the proposed legislation at the referendum. He also expects to pick support amongst those voters who did not vote for his party at the parliamentary election, but become better off if the proposed legislation is enacted. Let P be the probability that the incumbent wins the referendum vote and implements policy G. Since the problem which concerns us here is the choice of the incumbent, it is assumed (as it is indeed the case in plebiscites) that the opposition cannot propose an alternative policy to G. Instead, if the incumbent loses the referendum vote, the status quo remains; for simplicity the policy value of the status quo is set at zero. The probability that the incumbent loses, (correspondingly, the opposition wins the vote) is 1 − P. We assume that the objective function of the incumbent and the opposition is additive and separable in its attributes and that utility from the policy outcome is quadratic.10 We then write the objective function of the incumbent as h i UIR ¼ −kI Pð A−GÞ2 þð1−PÞð A−0Þ2 þ ð1 þ kI ÞgI P: ð1Þ The first component of the above sum denotes the expected (loss of) utility from the policy outcome, the second component captures the utility from winning the vote. The coefficient λI shows the relative weight that the incumbent attaches to implementing policy G. The coefficient (1 − λI) shows the relative weight on winning the vote and ηI is a scale factor which represents the value placed on winning the referendum vote. Amongst other factors, this may depend positively 10

This form of objective function was introduced by Nordhaus (1989) in his analysis of the political business cycle. A broadly similar framework is also assumed by Matsusaka and McCarty (2001). They model the politician as maximizing a utility function which is additive and separable in the preferences of the median voter and the politician himself. On the contrary, Kessler (2005) assumes that politicians are drawn from the citizens themselves and care about the policy they will carry out; in her formulation the utility of the citizen-representative depends on preferences about policy (and uncertainty about the outcome of policy measures). As already indicated, the choice of the utility function in the present study reflects the focus on the competition between different parties, rather than the conflict between voters-as-principals and politicians-as-agents.

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on the incumbent politician's intrinsic value of winning a direct vote; the enhanced reputation of the incumbent as an election winner and the consequences of the latter for future parliamentary elections; and the possibility that the referendum splits the opposition, while it avoids splits in the government coalition. An opportunistic party (one without policy preferences) is one with λI = 0; a purely ideological party (one which is only interested in policy outcomes) is characterised by ηI = 0. Manipulating, the objective function of the incumbent is written as n h i o UIR ¼ P kI A2 −ð A−GÞ2 þ ð1−kI ÞgI −kI A2 : ð1′Þ The expression HI ≡ λI[A2 − (A − G)2] + (1 − λI)ηI denotes the incumbent's marginal benefit from a vote won in a referendum; we then have UIR ¼ PHI −kI A2 :

ð1″Þ

For the objective function of the opposition, denoting the relative weight of policy by λO and the scale value of winning the vote by ηO, where in general λI ≠ λO and ηI ≠ ηO, we may write h i UOR ¼ −kO ð1−PÞð B−0Þ2 þPð B−GÞ2 þ ð1−kO ÞgO ð1−PÞ: ð2Þ Manipulating and denoting HO ≡ λO[(B − G)2 − B2] + (1 − λO)ηO, the opposition's marginal benefit from a vote won in a referendum, we have UOR ¼ ð1−PÞHO −kO ð B−GÞ2 :

ð2′Þ

This can be further simplified to UOR ¼ −PHO −kO B2 þ ð1−kO ÞgO :

ð2″Þ

The probability that the incumbent wins the referendum depends on the number of votes polled by the incumbent, VI, and the opposition, VO. We assume that this probability takes the “Tullock formula”11 and write P¼

VI : VI þ VO

ð3Þ

Expression (3) assumes that the vote contest is a fair game. That is, when the incumbent and the opposition poll the same number of votes, VI = VO, the probability of winning the contest must be equal to 1/2. Both the incumbent and the opposition will expend effort and resources to influence the number of votes polled. Specifically, the effort expended by the incumbent to attract the support of voters in a referendum is assumed to be proportional in the number of voters, and takes the form h i CIR ¼ ðG−M Þ2 þsI ðG−M Þ2 þsI VI : ð4Þ

11 For previous applications of this framework in the choice of institutional settings see amongst others Rubin et al. (2001) and Tridimas (2004). The present treatment of the probability as a continuous function is more general than that of Matsusaka and McCarty (2001) who assume fixed probabilities for different electoral outcomes.

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The term (G − M) 2 + sI(G − M) 2 + sI represents the marginal effort of attracting an extra vote in a referendum. It depends on two factors. The difference (G − M) 2 ≥ 0 represents the deviation of the policy proposed by the incumbent from the policy M most preferred by the median voter, who is assumed to be decisive in a referendum.12 That is, in common with the standard spatial decision model, it is postulated that the further away the proposed policy from the median is, the costlier it is for the incumbent to attract votes. Such costs will be incurred irrespective of whether the incumbent proposes a policy to the left or the right of M; hence the difference is squared. For convenience and without loss of generality, it is assumed that M > 0. The term sI ≥ 0 reflects voter bias, that is, factors other than policy preferences which may influence voters to support the proposal of the incumbent. For example, voter support for the incumbent may differ at the different phases of the business cycle, and may be influenced by the personal appeal (or lack of it) of the incumbent, his ability to argue his case persuasively, his perceived competence, honesty and integrity in office. It is expected that sI will be decreasing as the popularity of the incumbent increases. Finally, the term sI(G − M)2 is added to capture the possible interaction between the policy and non-policy influences on the decision of voters to support the incumbent. 13 Similarly, it is assumed that the effort expended by the opposition to gain voter support takes the form h i COR ¼ ð0−M Þ2 þsO ð0−M Þ2 þsO VO : ð5Þ The expression (0 − M) 2 + sO(0 − M) 2 + sO is the marginal cost. The term (0 − M) 2 = M 2 shows that the effort made by the incumbent to attract votes rises as the size of the deviation of the median point from the status quo (the alternative supported by the opposition) rises. In strict analogy to the incumbent, the coefficient sO ≥ 0 captures voter bias against the opposition originating from non-policy influences (appeal of the leader of the opposition, etc). When the incumbent calls a referendum his expected net benefit is RI = UIR − CIR. Substituting from Eqs. (1″), (3) and (4), we obtain RI ¼

h i HI VI −kI A2 − ðG−M Þ2 þSI ðG−M Þ2 þSI VI : VI þ VO

ð6Þ

The opposition's expected net benefit from a referendum is RO = UO − COR. Substituting, from Eqs. (2″), (3) and (5), we obtain RO ¼

  −HO VI −kO B2 þ ð1−kO ÞgO − M 2 þ sO M 2 þ sO VO : VI þ VO

ð7Þ

The Nash equilibrium of the game is found by assuming that the incumbent maximizes RI with respect to VI treating VO as given and that the opposition maximizes RO with respect to VO 12 If a supermajority rule applies – a majority greater than 50% + 1 of votes is required – M has to be re-interpreted accordingly. 13 In the expression for the marginal cost, each component of the sum is assumed to enter with the same unitary coefficient. This assumption is made for convenience only, for the more general case of writing the marginal cost as (G − M)2 + c1sI(G − M)2 + c2sI would have complicated the algebra without an analogous gain in intuition.

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treating VI as given. Differentiating and solving yields the expressions for the equilibrium values of votes HI2 HO ½M 2 þ sO M 2 þ sO  V ⁎I ¼ n i h i HI M 2 þ sO M 2 þ sO þ HO ðG−M Þ2 þsI ðG−M Þ2 þsI

½

g

h i HI HO2 ðG−M Þ2 þsI ðG−M Þ2 þsI V ⁎O ¼ n i h i HI M 2 þ sO M 2 þ sO þ HO ðG−M Þ2 þsI ðG−M Þ2 þsI

½

2

g

2

:

ð8Þ

:

ð9Þ

The probability that the incumbent wins the referendum is then given by P ⁎¼

HI ½M 2 þ sO M 2 þ sO  h i: HI M 2 þ sO M 2 þ sO þ HO ðG−M Þ2 þsI ðG−M Þ2 þsI

½



ð10Þ

It can easily be checked that the above probability is increasing in the size of bias against the opposition, sO, and the incumbent's marginal benefit of a referendum vote HI. On the other hand, it is decreasing in the size of voter bias against the incumbent, sI, the incumbent's policy deviation from the median, (G − M)2, and the opposition's marginal benefit of a referendum vote, HO. However, the effect of a change in the size of the median, M, is ambiguous. To gain a better understanding of the equilibrium formula of the probability that the incumbent wins the referendum, Eq. (10) can be expressed as P⁎ ¼

f½

M 2 þ sO M 2 þ sO



½M 2 þ sO M 2 þ sO   HO nh i o:  HO þ ðG−M Þ2 þsI ðG−M Þ2 þsI  HI

g

ð10′Þ

þsO The term qO uM þsHO M is the ratio of the opposition's marginal effort for a referendum vote O divided by the marginal benefit of a referendum vote; it can be thought as the opposition's net 2 2 marginal effort for a referendum vote. By the same token, the term qI u ðG−M Þ þsHI ðIG−M Þ þsI is the incumbent's net marginal effort for a referendum vote. The probability that the incumbent wins the referendum may then be rewritten as 2

P⁎ ¼

2

qO : qO þ qI

ð10″Þ

Substituting from Eqs. (8) and (9) back into Eq. (6), the net benefit of the incumbent in a referendum is written as R⁎ ¼ I

2

HI2 ½M 2 þ sO M 2 þ sO  2 n h io2 −kI A : 2 2 2 2 HI M þ sO M þ sO þ HO ðG−M Þ þsI ðG−M Þ þsI

½



ð11Þ

Using Eq. (10″) Eq. (11) can be expressed more compactly as R ⁎I ¼ ð P⁎Þ −kI A2 : 2

ð11′Þ

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The incumbent's expected net benefit from a referendum is a quadratic function of the probability of winning the referendum. More generally, it is clear that the expected net benefit of the incumbent depends on the parameters of his objective function as well as those of the opposition, the parameters of the functions which describe the effort to secure votes, the preferences of the median voter and the deviation of the policy implemented from the median preferences. Since in the present setting the opposition cannot force the incumbent to hold a referendum, its expected net benefit from the game is not studied any further. 3.2. Ratification through parliament We now assume that the incumbent seeks to ratify the constitutional amendment through the parliament. In the case of ordinary legislation the governing coalition is supported by the majority of elected representatives and the incumbent can rely on their votes to pass his proposed policy measures. Analogously, the opposition consists of a minority of elected representatives and, with a few exceptions (typically involving some issues of national defence), the representatives of the opposition vote against the proposals of the incumbent. With the number of government representatives greater than the number of opposition representatives and all the representatives voting on party lines, it is certain that the incumbent will pass his proposed legislation. The game played between the incumbent and the opposition is then rather simple and uninteresting. In this circumstance, the contest for votes takes place between the parties in the national vote for parliamentary seats rather than in parliament. However, as already discussed, for some controversial pieces of legislation (like constitutional amendments) the usual parliamentary confrontation which ends with the certain victory of the government is not applicable. Elected representatives of the governing coalition for reasons of ideology or political expediency (especially if their party is unpopular), or other personal reasons may conclude that they are better off by voting against the legislation proposed by the incumbent. Intuitively, when voting against the incumbent's proposal politicians of the government coalition have to weigh the benefits from voting against a policy they dislike and the cost of punishment by the leadership (being bypassed for promotion and so on), or in the worst case precipitating the fall of the government and the call of an election whose outcome is uncertain. Equally, some opposition politicians for ideological or personal reasons may prefer to support the legislation introduced by the government and vote against the official line adopted by the leadership of the opposition. As before, in voting for the incumbent's proposal opposition politicians have to weigh up the benefits from supporting a policy they prefer and the cost of possibly forgoing the opportunity to bring down the government. If a free vote amongst representatives is called, or if the party whips are unable to marshal representatives to follow party lines, the outcome of the parliamentary vote becomes uncertain. It is this game which concerns us here. Let Q denote the probability that the incumbent wins the parliamentary vote. The objective function of the incumbent is written as h i UIE ¼ −kI Qð A−GÞ2 þð1−QÞð A−0Þ2 þ ð1−kI ÞhI Q: ð12Þ This is similar to Eq. (1), the difference being that the utility from winning the parliamentary vote is in general different from the utility of winning the referendum vote. Specifically, one presumes that, ηI ≥ θI. This recognizes that victory in a referendum, which relies on the direct approval of the voters, may be valued higher than a parliamentary victory, where the incumbent

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enjoys the support of the majority of the representatives and lacks the direct involvement of the electorate. Even if the incumbent enjoys a solid parliamentary majority, winning a vote in parliament may be considered as “softer” than winning a referendum. Moreover, the leader of the party in office calculates that calling a referendum, even though not required, signals to the electorate his willingness to subject himself to the test of voters and his commitment to democracy, factors which may enhance his reputation and help win a later parliamentary election too. Similarly, assuming that for the opposition it is also ηO ≥ θO, its objective function is written as h i UOE ¼ −kO ð1−QÞð B−0Þ2 þQð B−GÞ2 þ ð1−kO ÞhO ð1−QÞ: ð13Þ If a free vote takes place in parliament neither the representatives in the governing coalition nor those of the opposition have to follow party lines, but they vote according to their preferences. Then the probability that the incumbent wins the parliamentary vote Q depends on the number of representatives who vote for it, NI, and the number of representatives who vote against it, NO. Assuming again a non-discriminatory Tullock probability, we may write Q¼

NI : NI þ NO

ð14Þ

The effort of the incumbent to secure the support of representatives, CIE, is assumed to take the form h i ð15Þ CIE ¼ ðG−lÞ2 þrI ðG−lÞ2 þrI NI : μ > 0 denotes the ideal point of the median elected representative. There are good reasons to expect that the ideal point of the median voter in the electorate, M, differs from the ideal point of the median voter in the parliament, μ. The referendum aggregates the preferences of all voters simultaneously by treating the electorate as a single constituency, a process which (under the usual conditions) can elicit the preferences of the median voter. On the other hand, parliamentary elections aggregate the geographical constituencies, which differ in their socio-economic makeup and therefore voter preferences. As different electoral systems apply different representation thresholds and majority rules, the distribution of the policy preferences of the politicians elected by different constituencies does not necessarily replicate the distribution of policy preferences of the electorate. Then, in general we have M ≠ μ. The difference (G − μ)2 in Eq. (15) captures the difference between the platform proposed by the leader of the government and the preferences of the median representative. The larger this difference, the more effort the incumbent has to expend to pass his proposed policy. The nonpolicy bias of the representatives against the incumbent is captured by the σI coefficient, with σI > 0. In a parliamentary system, where the government assumes office after being voted in by a majority of the representatives, one expects that the representative with median preferences supports the incumbent. If in addition the coalition of politicians who support the government is cohesive, the value of σI will be very small reflecting that a majority of the representatives support the incumbent, who then needs comparatively little effort to persuade them to vote for his proposed policy. At the limit, with σI = 0 and (G − μ)2 = 0, the policy introduced by the incumbent

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passes with certainty, so that we may write CIE = 0 and Q = 1. In the more general case examined here, CIE > 0 and 0 < Q < 1. Intra-party policy differences are then reflected in the size of the (G − μ)2 , while weak party discipline – inability to control the representatives – is reflected in the size of σI.14 Moreover, one may presume that σI and (G − μ) 2 are positively correlated, in the sense that when the difference between the preferences of the leader and the median representative is large, so is the weakness of the leader to control the representatives of his party. The effort function of the opposition is assumed to be h i COE ¼ ð0−lÞ2 þrO ð0−lÞ2 þrO NO : ð16Þ As before, the term (0 − μ)2 = μ2 captures the effort expended by the opposition because of policy differences between its platform and the ideal point of the median representative in parliament. The parameter σO > 0 denotes the bias of representatives against the opposition. Similarly to the governing coalition, a well-disciplined party of opposition representatives will be characterised by a very small σO. When the incumbent calls a parliamentary vote, his net expected benefit is EI = UIE − CIE, while that of the opposition is EO = UOE − COE. Denoting ΘI ≡ λI [A2 − (A − G)2] + (1 − λI)ΘI, the incumbent's expected marginal benefit from a vote won in parliament, and ΘO ≡ λO [(B − G)2 − B2] + (1 − λO)ΘO, the opposition's expected marginal benefit from a vote won in parliament, we have h i HI NI −kI A2 − ðG−lÞ2 þrI ðG−lÞ2 þrI NI : ð17Þ EI ¼ NI þ NO EO ¼

  −HO NI −kO B2 þ ð1−kO ÞhO − l2 þ rO l2 þ rO NO : NI þ NO

ð18Þ

The Nash equilibrium of the game is again found by assuming that the incumbent maximizes EI with respect to NI treating NO as given and analogously for the opposition. Upon differentiating and after the relevant manipulations we obtain that in equilibrium the probability that the incumbent wins the parliamentary vote is Q⁎ ¼

HI ½l2 þ rO l2 þ rO  h i: HI l2 þ rO l2 þ rO þ HO ðG−lÞ2 þrI ðG−lÞ2 þrI

½



ð19Þ

Or, Q⁎ ¼

f½l

2

þ rO l2 þ rO



½l2 þ rO l2 þ rO   HO nh i o:  HO þ ðG−lÞ2 þrI ðG−lÞ2 þrI  HI

g

ð19′Þ

14 Note that even if G = μ, it is still possible for the incumbent not to control his representatives completely. Some backbenchers, who share the same preferences with the leader, may nonetheless vote against the leadership for personal reasons, or because they have been bypassed for promotion to office and the like.

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The term pO u l þrHO lO þrO is the ratio of the opposition's marginal effort for a parliamentary vote divided by the marginal benefit of a parliamentary vote, and can be thought as the opposition's net 2 2 marginal effort of a parliamentary vote. By the same token, the term pI u ðG−lÞ þrHI ðIG−lÞ þrI is the incumbent's net marginal effort for a parliamentary vote. The probability that the incumbent wins in parliament may then be rewritten as 2

Q⁎ ¼

2

pO : pO þ pI

ð19″Þ

The expected net benefit of the incumbent is written as E⁎ ¼ I

2

H2I ½l2 þ rO l2 þ rO  n i h i HI l2 þ rO l2 þ r2O þ HO ðG−lÞ2 þrI ðG−lÞ2 þrI

½

g

2

−kI A2 :

ð20Þ

Using Eq. (15), Eq. (16) can be expressed more compactly as E ⁎I ¼ ðQ⁎Þ −kI A2 : 2

ð20′Þ

The latter has an interpretation analogous to that given for R⁎I in Eqs. (11) and (11′). 3.3. The choice between referendum and parliamentary vote The incumbent will call a non-required binding referendum when the expected net benefit from the referendum is greater than the expected net benefit from the parliamentary vote, that is, when R⁎I > E⁎I . He will opt for parliamentary ratification when R⁎I < E⁎I , while he will be indifferent between the two routes to ratification when R⁎I = E⁎I . Comparison of the expected payoffs of the incumbent under a referendum and a parliamentary benefit, Eqs. (11′) and (20′), and ruling out negative values of the probabilities, yields pI qI − ¼ R ⁎I −E ⁎I ¼ pO qO

ðG−lÞ2 þrI ðG−lÞ2 þrI HI l2 þrO l2 þrO HO

ðG−M Þ2 þsI ðG−M Þ2 þsI − M 2 þs HMI 2 þs O O HO

:

ð21Þ

Whether or not the incumbent calls a non-required binding referendum depends on whether or not pI q > I: pO qO

ð22Þ

That is, the incumbent will call a referendum when his net marginal effort for a parliamentary vote relative to the opposition's net relative marginal effort, πI/πO, exceeds his net marginal effort for a referendum vote relative to that of the opposition, ρI/ρO. Recalling the terms involved in the relative marginal efforts, it is clear that all factors identified by the model affect the choice of the incumbent whether or not to call a referendum. That is, the choice will depend on the parameters of the utility function of the incumbent and the opposition, the configuration of non-policy biases of the elected representatives and the electorate, the policy preferences of the median voter in the referendum, the median voter in the parliament and the policy proposed by the incumbent. The model predicts that the leader of the government is likely to call a referendum when he exercises only weak control over his own parliamentary party (large value of σI) and his party is split over the legislation that

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Table 1 Comparative static properties of the ratification choice An increase in

Implies that the Likelihood of a referendum

Incumbent's valuation of ratification by referendum, HI Incumbent's valuation of ratification by parliament, ΘI Policy deviation from the median voter, (G − M)2 Voter bias against the incumbent, sI Elected representative bias against the incumbent, σI Opposition's valuation of ratification by referendum, HO Opposition’s valuation of ratification by parliament, ΘO Policy deviation from the median elected representative, (G − μ)2 Voter bias against the opposition, sO Elected representative bias against the opposition, σO

Increases Decreases Decreases Decreases Increases Decreases Increases Increases Increases Decreases

he wants to ratify (large difference between G and μ). The incentive to call a referendum is compounded when the parliamentary opposition is united (small value of σO), the incumbent thinks that his policy is closer to the preferences of the voters (small difference between G and M), he is personally popular amongst the electorate (small sI), while the opposition is unpopular (large sO), and when he values direct endorsement of the policy more than parliamentary endorsement (large HI in comparison to ΘI). Table 1 summarizes the expected effect of these factors on the likelihood that the incumbent will call a referendum. These conclusions formalize and generalise the intuition of the earlier scholarship reviewed above. More specific results are obtained for special values of the parameters. Specifically, let us assume that both the incumbent and the opposition value equally a win in a referendum and a parliamentary vote, so that ηI = θI and ηO = θO,15 in which case, HI = ΘI and HO = ΘO. Substituting into Eq. (18) we obtain that the incumbent will call a referendum (R⁎I > E⁎I ) when ðG−lÞ2 þrI ðG−lÞ2 þrI ðG−M Þ2 þsI ðG−M Þ2 þsI > : l2 þ rO l2 þ rO M 2 þ sO M 2 þ sO

ð23Þ

The first term of the above inequality is the ratio of the incumbent's marginal effort in a parliamentary vote relative to that of the opposition. Similarly, the second term of the inequality is the incumbent's marginal effort in a referendum relative to that of the opposition. The expression in Eq. (23) then postulates that the incumbent will call a referendum when he perceives the parliamentary vote as requiring more effort per vote relative to the referendum. These comparisons formalize the intuition that governments use non-required referenda to “gloss over” divisions in their own ranks, captured by the σI coefficient of the model, and open up divisions in the opposition, captured by the σO coefficient, as well as the difference between M, μand G, and to legitimize policies by involving voters directly, captured by the median points of the electorate and the representatives, M and μ, respectively.

15

Note that this condition necessarily holds when the two parties have purely ideological preferences, that is, when ηI = θI = ηO = θO = 0.

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Table 2 Incumbent's choice of ratification method Configuration of policy preferences

Sign of ð G−l l Þ −

0
− ? + 0 + ? −

2

G−M 2 M

Incumbent's choice: Ratification by Parliament Ambiguous Referendum Indifference Referendum Ambiguous Parliament

Expression (23) can be simplified even further if the voting biases in the effort functions of the incumbent and the opposition are assumed away, so that the only reason why the incumbent and the opposition need to expend effort is differences in policy preferences. Formally, with sI = sO = σI =σO = 0, the inequality in Eq. (23) is transformed into     G−l 2 G−M 2 > : l M

ð24Þ

That is, the choice for or against a referendum will depend entirely on the sizes of normalized deviations from the median preferences in parliament and the electorate. There are seven possible configurations of G, M and μ. These and the resulting choices for calling or not a referendum are shown in Table 2. Inspection of Table 2 reveals that when the policy introduced by the incumbent government lies between the parliamentary and electorate median preferences, the choice of one or another method is ambiguous (see the second and the seventh rows). On the other hand, when the policy lies outside the segment defined by the two medians, and irrespective of whether M is greater or lower than μ, the choice of the route of ratification becomes unambiguous. If the policy is “extreme” from the point of view of the electorate, that is, G is smaller than μ and μ is smaller than M, or G is larger than μ and μ is larger than M, the incumbent seeks ratification through the parliament (see the first and the last rows). In the opposite case, where the policy is “extreme” from the standpoint of the representatives, that is, G is larger than M and M is larger than μ, or G is smaller than M and M is smaller than μ, the incumbent opts for a referendum (third and fifth rows). Finally, in the case where the electorate and parliamentary medians coincide, the incumbent is indifferent between the two routes of ratification. 4. Conclusions The existing literature on referenda compares the benefits that voters expect from referenda vis-à-vis from representation. The focus of this literature is on the conflict between voters and politicians, the sources of this conflict and its consequences for policy under the referendum and the parliamentary methods of decision making. The present study has focused on the conflict between the government and the opposition, and has compared the benefits the government derives by winning a referendum and a parliamentary vote. We began from the observation that in practice governments often call referenda to resolve an important issue, like

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constitutional arrangements and national sovereignty, even though the government has the required parliamentary support to pass legislation and the constitution provides that the issue under consideration can be decided by a parliamentary vote only. Previous research has paid only scant attention to this question. Although the tactical advantage held by the incumbent government when calling such a non-required referendum has been recognized, no formal model has studied the phenomenon. Recent non-required referenda on EU integration, amongst other examples, attest to the relevance of this inquiry. For European democracies European integration, which implies transferring some sovereign decision making powers to the EU supranational bodies, has turned out to be a vexing constitutional issue cutting across traditional party lines and causing intra-party rifts. As a result, the governments of several European countries have often called non-required referenda to settle questions of EU membership and further integration. Acknowledging that the outcome of a vote, either plebiscital or parliamentary, is uncertain, a model of spatial decision making has investigated the interactions between the government and the opposition in an environment of incomplete information about the preferences of the voters in a referendum and the preferences of the elected representatives in a parliamentary vote. Ratification of legislation confers utility in allowing the incumbent government to realise policy preferences and in the intrinsic value of winning the contest against the opposition. Winning the referendum contest is costly as it involves expending effort to attract voter support. This effort increases as the difference between the proposed legislation and the ideal point of the median-decisive voter increases, and as the non-policy biases of voters against the incumbent increase. Similarly, a parliamentary victory requires effort, which is increasing in the difference between the incumbent's proposal and the ideal point of the median-decisive representative and the non-policy preferences of the representatives. The effort for winning the referendum differs from the effort for winning the parliamentary vote because the ideal point of the median voter in the electorate differs from the ideal point of the median representative in the parliament and because the non-policy biases of voters differ from the non-policy biases of representatives. Whether the incumbent calls a referendum to ratify a policy choice or submits the decision to a parliamentary vote depends on the comparison of the expected payoffs in the two different contests given the status quo. The model predicts that the incumbent government is likely to call a non-required referendum rather than a parliamentary vote when (a) the policy proposed is close to that preferred by the median voter in the electorate, while it differs significantly from that preferred by the representatives of the government's own party; (b) the government values a referendum victory more than a parliamentary victory; (c) the leader of the government enjoys high personal (that is, not related to the specific legislation) support amongst the electorate, while the opposition is held in low esteem; (d) the government exercises weak control over the elected representatives of its party, while the representatives of the opposition are split over the policy proposed by the government. These predictions accord well with intuition and the actions of incumbents in calling and, to a large extent winning, referenda in political practice. Of course, the present study represents a first attempt to study formally the calculus of nonrequired referenda. Subjecting the predictions of the model to rigorous statistical testing is an obvious next step for further research. Equally important is to examine additional constraints on the incumbent originating from the precedent of having held referenda and the interaction with other veto players like the constitutional court.

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Acknowledgments I wish to thank two anonymous referees and Arye Hillman for various helpful comments and suggestions. Of course, responsibility for any remaining errors or omissions is mine alone. Appendix Referenda on European Integration Year

Issue

1972 1972

Enlargement Membership

1972 1975 1982 1986 1987 1989 1992

Free trade with EEC Membership Membership Single European Act Single European Act Euroconstitutional process Maastricht Treaty

1992 1992 1993 1994

EEA accession EEA accession Maastricht Treatyb Membership

1995 1997 1998

Membership EU access procedures Amsterdam Treaty

2000 2000 2001 2001 2002 2003

Bilateral EU treaties Euro accession Nice Treaty EU access procedures Nice Treatyc Membership

2005

European Constitution

Country

Francea Ireland Norway Denmark Switzerland UK Greenland Denmark Ireland Italy Ireland France Denmark Switzerland Lichtenstein Denmark Austria Finland Sweden Norway Aland Islands Lichtenstein Switzerland Denmark Ireland Switzerland Denmark Ireland Switzerland Ireland Malta Slovenia Hungary Lithuania Slovakia Poland CzechRepublic Estonia Latvia Spain France

% of Votes

Referendum type

‘Yes’

‘No’

68 83 46 63 72 67 46 56 70 88 69 51 48 49 56 57 67 57 53 47 74 56 26 55 62 67 47 46 23 63 54 90 84 90 92 77 77 67 67 77 45

32 17 54 37 28 33 54 44 30 12 31 49 52 51 44 43 33 43 47 53 26 44 74 45 38 33 53 54 77 37 46 10 16 10 8 23 23 33 33 23 55

Non-required Required Non-required Required Required Non-required Non-required Non-required Required Initiative Required Non-required Required Required Required Non-required Required Non-required Non-required Non-required Non-required Required Initiative Required Required Initiative Required Required Initiative Non-required Non-required Non-required Non-required Required Non-required Non-required Required Non-required Non-required Non-required Non-required

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Appendix (continued ) Year

Issue

Country

% of Votes ‘Yes’

Referendum type

2005

European Constitution

Netherlands Luxembourg

38 57

62 43

‘No’ Non-required Non-required

Notes: As all governments which called consultative referenda promised to abide by their outcome, the binding– consultative distinction is not reported. a French referendum on the accession of the UK, Ireland and Denmark. b After Denmark negotiated opt-outs from specific policies. c After the Irish government took various measure to assuage public concerns about Irish neutrality. Source: For referenda in the period 1972–2002: Huatala et al. (2002); Christin and Hug (2002). For the 2003 referenda: Sczcerbiak and Taggart (2004). For the 2005 referenda: author's compilations.

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