• Preliminary versions were presented at the Universities of Basel, U.C. Berkeley, Chicago, Cornell, Harvard, Munich and Pennsylvania. I am grateful for helpful discussion of the underlying issues to Geoffrey Brennan, James Buchanan, Bob Cooter, Hartmut Kliemt, Alan Levy, Richard Musgrave, Daniel Rubinfeld, Fritz Scharpf, Amartya Sen, Oliver Williamson and Gordon Tullock. Psychologists Klaus Foppa, Allan Lind, Kurt Stapf, Wolfgang Stroebe and Tom Tyler gave me helpful hints with respect to their science. For useful and detailed comments on this paper I thank Iris Bohnet, Reiner Eichenberger, Ernst Fehr, Armin Falk, Simon Gächter, Marcel Kucher, Felix Oberholzer-Gee and Jean-Robert Tyran as well as two anonymous referees. I acknowledge financial support from the Swiss National Fund, project no. 12-42480.94.


When discussing constitutional design, economists concentrate on the propensity of individuals to free ride. Preventing opportunistic behaviour by knaves has costs by crowding out civic virtue. Another view emphasises active citizen participation in order to bolster civic virtue. A viable constitution must therefore be strict enough to deter exploitative behaviour. At the same time, the constitution should fundamentally convey trust towards its citizens and politicians. Distrusting public laws risk destroying the positive attitude of citizens and politicians towards the state. Civic virtue can be maintained and fostered by direct citizen participation via popular referenda and initiatives.