Diversity and the Power of the Elites in Democratic Societies: A Model and a Test

This paper analyzes whether political outcomes in local democracies are determinedby the preferences of the median -typically poor- agents or whether they reflect thewishes of the wealthy elites. A model shows that when politicians belonging to differentgroups can form coalitions, the wealthy elites’ influence on policy choices is endogenouslyhigher when there is diversity in preferences among the poor. In line with thetheoretical predictions, the pattern of public good provision by local governments inIndonesia reveals that when individuals have different preferences —here due to differentethnicities— democratic policy outcomes are closer to the preferences of the elites, ratherthan the preferences of the poor majority.[...]