The impacts of voices by interest groups upon referendum outcomes

Referendums in which imperfectly informed individuals are called to vote for or against a public project can result in inefficient outcomes, as compared to the outcomes that would arise with completely informed individuals. In this paper, an incomplete information game is presented to investigate the influence of interest groups´ voices on individuals´ judgments. It is shown that in the case individuals´ judgments on the credibility of the groups´ voices are based on the groups´ efforts, a limited number of interest groups utilize their voices in strategic fashions and try to prevent a referendum outcome containing the majority will. Alternative institutional designs are introduced to overcome this inefficiency, and some problems regarding the referendum processes are discussed.