Abstract
When individuals have imperfect knowledge of a public project, a referendum where the individuals are called to vote for or against the project can end up in an inefficient outcome that is different from an outcome performed by completely informed individuals. In this paper, an incomplete information game is presented to investigate the influence of interest groups' voice on individuals' judgements. It is shown that in the cases the individuals judge the credibility of the voice based on the groups' efforts, a limited number of interest groups send their voice in strategic fashions and try to prevent a referendum outcome coinciding with majority will. Alternative institutional designs are introduced to overcome the inefficient outcome caused by referendum, and some problems regarding the referendum processes are discussed.
