This paper analyzes the problem that an incumbent faces during the legislature when deciding how to react to popular initiatives or policy proposals coming from different sources. We argue that this potential source of electoral disadvantage that the incumbent obtains after being elected can jeopardize the reelection possibilities of the incumbent. We analyze the decision of the incumbent when facing reelection and we characterize the conditions under which the advantages that the incumbent obtains can overcome the disadvantages. Finally, we use the results of this analysis to discuss some implica- tions of the use of mechanisms of direct democracy like referenda and popular assemblies on electoral competition.

Aragonès acknowledges financial support from the Spanish Ministry of Education and Science, grant number ECO2009-08820, the Barcelona GSE and the Catalan Government. We would like to thank Miguel Angel Ballester, Micael Castanheira, Luca Merlino, Norman Schofield, Jim Snyder, Joel Sobel, participants of the first APE-X meeting in Brussels and participants of the IAE’s informal seminar for their useful comments.

JEL Classification Codes: D7; H1.-- Trabajo presentado a: "XVIII Encuentro de Economía Pública" celebrado en Malaga en 2011; "PET 10 - Annual Conference of the Association for Public Economic Theory" celebrada en Estambul en 2010; "MOVE - Urrutia Elejalde Workshop on: Information, Dynamics, and Political Decision Making" celebrado en Barcelona en 2010.

Peer reviewed