Political Institutions, Policy Choice and the Survival of Leaders

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B.J.Pol.S. 32, Copyright 2002 Cambridge University Press DOI: /S Printed in the United Kingdom Political Institutions, Policy Choice and the Survival of Leaders BRUCE BUENO
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B.J.Pol.S. 32, Copyright 2002 Cambridge University Press DOI: /S Printed in the United Kingdom Political Institutions, Policy Choice and the Survival of Leaders BRUCE BUENO DE MESQUITA, JAMES D. MORROW, RANDOLPH M. SIVERSON AND ALASTAIR SMITH* Institutional arrangements influence the type of policies that leaders pursue. We examine two institutional variables: size of the selectorate (S) the set of people who have an institutional say in choosing leaders and the size of the winning coalition (W) the minimal set of people whose support the incumbent needs in order to remain in power. The larger the winning coalition, the greater the emphasis leaders place on effective public policy. When W is small, leaders focus on providing private goods to their small group of supporters at the expense of the provision of public goods. The size of the selectorate influences how hard leaders work on behalf of their supporters. The greater the size of the selectorate, the more current supporters fear exclusion from future coalitions. This induces a norm of loyalty that enables leaders to reduce their effort and still survive. As a first step towards a theory of endogenous selection of institutions, we characterize the institutional preferences of the different segments of society based on the consequences of these institutions for individual welfare. We conclude by examining the implication of the model for the tenure of leaders, public policy, economic growth, corruption, taxation and ethnic politics. We examine how political institutions influence the incentives of leaders to allocate resources towards the provision of public goods (such as the protection of property rights, the rule of law, transparency, protection of human rights, national security) and private goods (such as the corruption, pork, patronage, cronyism, nepotism). In particular, we identify the institutional circumstances in which the incentives facing a leader who wants to stay in office are compatible with the provision of effective public policy. We contrast these circumstances with institutional arrangements in which the incentives facing the leader are compatible with corruption, kleptocracy and other forms of inefficient governance. We demonstrate that certain institutions discourage the provision of public goods that benefit all in society; these institutions also benefit leaders welfare in comparison with other systems that encourage the provision of public goods. We use the results of the model that we propose to characterize the institutional preferences of different segments of society. For instance, we ask how a leader, or a member of his or her coalition, would alter political institutions if there were an opportunity to do so. In this way, we move towards a theory of endogenous institutional design. We conclude with discussions of the implications of our results and directions for future research. A large literature exists on political institutions and governance. One strand of this literature largely focuses on institutional differences across democratic * Departments of Political Science at Hoover Institution and New York University; University of Michigan; University of California, Davis; and Yale University, respectively. 560 BUENO DE MESQUITA, MORROW, SIVERSON AND SMITH systems. 1 Another strand focuses on non-democratic institutions, with a major emphasis devoted to leadership. 2 Less attention has been paid to the differences between these major classifications of regime types. 3 We seek to unify the study of the differences within and across the traditional regime classifications of democracy, autocracy and monarchy. To do so we focus on just two political institutions that characterize all political systems: the size of the selectorate the set of people who have an institutional say in choosing leaders and the size of the winning coalition that keeps the leader in office. 4 We start by describing the problems our model addresses and the intuitions 1 David Baron, Comparative Dynamics of Parliamentary Government, American Political Science Review,92(1998), ; Timothy Besley and Stephen Coate, An Economic Model of Representative Democracy, Quarterly Journal of Economics, 112 (1997), ; Gary W. Cox, Making Votes Count (New York: Cambridge University Press, 1997); Avinash Dixit and John Londregan, The Determinants of Success of Special Interest Groups in Redistributive Politics, Journal of Politics, 58(1996), ; Anthony Downs, An Economic Theory of Democracy (New York: Harper and Row, 1957); John Ferejohn, Incumbent Performance and Electoral Control, Public Choice, 50(1986), 5 26; Gene Grossman and E. Helpman, Electoral Competition and Special Interest Politics, Review of Economic Studies, 63(1996), ; Michael Laver and Norman Schofield, Multiparty Government: The Politics and Coalitions in Europe (Oxford: Oxford University Press, 1990); Torsten Persson, Gerard Roland and Guido Tabellini, Comparative Politics and Public Finance (CEPR Discussion Paper 1737, 1997); Torsten Persson and Guido Tabellini, Growth, Distribution, and Politics, in Torsten Persson and Guido Tabellini, eds, Monetary and Fiscal Policy, Vol.2: Politics (Cambridge, Mass.: MIT Press, 1994), pp Gary M. Anderson and Peter J. Boettke, Perestroika and Public Choice: The Economics of Autocratic Succession in a Rent-Seeking Society, Public Choice, 75(1993), ; Herschel I. Grossman, Kleptocracy and Revolutions, Oxford Economic Papers, 51(1999), ; Samuel Huntington, Political Order in Changing Societies (New Haven, Conn.: Yale University Press, 1968); John Londregan and Keith Poole, Poverty, the Coup Trap, and the Seizure of Executive Power, World Politics, 49(1990), 1 30; Martic C. McGuire and Mancur Olson, The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force, Journal of Economic Literature, 34 (1996), 72 96; Mancur Olson, Dictatorship, Democracy, and Development, American Political Science Review, 34(1993), ; Ronald Wintrobe, The Political Economy of Dictatorship (New York: Cambridge University Press, 1998). 3 McGuire and Olson, The Economics of Autocracy and Majority Rule ; Olson, Dictatorship, Democracy, and Development. 4 Ours is not a theory of standard regime types dressed up in new clothes. It is a theory of political institutions that helps account for many characteristics associated with particular regimes. While most systems with large winning coalitions are democratic, and those with small coalitions and large selectorates are autocratic (monarchies and juntas usually have small coalitions and small selectorates), coalition size and selectorate size are insufficient to define any common regime types. Rather, selectorate and coalition size are correlated with regime classifications. For instance, democracy is often associated with a variety of characteristics, such as an independent judiciary, free press, civil liberties, norms of conduct and reliance on law, that are not part of what defines the coalition or selectorate. Rather, these features of democracy are policy consequences expected to follow from having a large winning coalition and a large selectorate. Because selectorate and coalition size do not define common regime categories, we expect the empirical implications of our theory to hold when we relate coalition size and selectorate size to an array of dependent variables, but they may not hold when we relate standard measures of regime types to the same dependent variables. Elsewhere we show that these expectations are borne out by the evidence (Bruce Bueno de Mesquita, Alastair Smith, Randolph Siverson and James Morrow, The Logic of Political Survival (unpublished manuscript, 2000)). Political Institutions, Policy and Survival of Leaders 561 underlying the model. Although the mathematics of the model is somewhat complex, the intuition behind it is straightforward. We then present the model and its equilibria and summarize the comparative static analysis of behaviour under equilibrium. Although space limitations preclude testing the model s claims here, we summarize empirical assessments of its validity that are presented elsewhere. 5 The proofs for our theoretical claims are displayed. We conclude with discussions of the substantive implication of our results and directions for future research. POLITICAL INSTITUTIONS AND THE PROVISION OF GOODS All political leaders seek to hold office, as holding a position of power is a minimal requirement to achieve any other political end. Whether a leader continues in office depends on those in society who hold the power to remove the incumbent and select her replacement. We refer to these individuals as the selectorate. Within the selectorate, a leader stays in power by holding the loyalty of a winning coalition. The composition of the selectorate and the magnitude of the winning coalition are important characteristics of any political system. In modern mass democracies, the selectorate is the electorate, and the winning coalition is determined by the specific electoral rules. In autocratic systems, the winning coalition is often a small group of powerful individuals, and the selectorate is those who have the positions (for example, military rank or party membership in a single-party system) to aspire to make and break leaders. Although the membership of each group may be detailed and complex in most political systems, we simplify our approach by assuming that all members of the selectorate have equal weight in the winning coalition. We then characterize the selectorate and winning coalition by the size of their membership and refer to those sizes as S and W respectively. We also assume that leaders provide a mixture of public and private goods. Public goods benefit all members of the society. Private goods are excludable and awarded by the leader to specific members of society. Such private goods cover a wide range of government policies and actions that produce benefits for particular individuals, such as state-granted monopolies, access to hard currency, stores in economies with shortages, and kickbacks and bribes secured by government officials. The leader controls resources which she can use to 5 Bruce Bueno de Mesquita, James D. Morrow, Randolph Siverson and Alastair Smith, Policy Failure and Political Survival: The Contribution of Political Institutions, Journal of Conflict Resolution, 43(1999),147 61; Bruce Bueno de Mesquita, James D. Morrow, Randolph Siverson and Alastair Smith, An Institutional Explanation for the Democratic Peace, American Political Science Review, 93(1999), ; Bruce Bueno de Mesquita, James D. Morrow, Randolph Siverson and Alastair Smith, Political Institutions, Political Survival, and Policy Success, in Bruce Bueno de Mesquita and Hilton Root, eds, Governing for Prosperity (New Haven, Conn.: Yale University Press, 2000), pp ; Bruce Bueno de Mesquita, James D. Morrow, Randolph Siverson and Alastair Smith, Testing the Selectorate Explanation of the Democratic Peace (unpublished manuscript, 2000); Bueno de Mesquita, Smith, Siverson and Morrow, The Logic of Political Survival. 562 BUENO DE MESQUITA, MORROW, SIVERSON AND SMITH produce a mixture of public and private goods, retaining unallocated resources for her own benefit. 6 The leader s coalition includes all who receive private goods from her. When a challenger emerges to the sitting leader and proposes an alternative allocation of resources, the members of the selectorate must decide whom to support. The challenger replaces the leader if he can reduce the leader s coalition to less than a winning coalition by attracting enough members of the leader s coalition to support his challenge and if he can attract enough support throughout the selectorate to create a coalition of his own that is at least a winning coalition. A leader thwarts a challenge if she either retains a winning coalition or prevents the challenger from assembling a winning coalition. The institutions of the selectorate and winning coalition influence a contest for leadership by altering the mix of public and private goods that a leader produces in her efforts to fend off challenges. Our first central intuition is that public goods become more attractive to provide relative to private goods as the size of the winning coalition increases. A simple numerical example illustrates this insight. Imagine that the leader has a pool of $1,000 with which to provide goods and that spending the entire $1,000 would produce a public good worth $20 to everyone in society. If a winning coalition requires only ten members of the selectorate, the leader can offer each of them up to $100 of private goods which they would prefer to the public good. If a winning coalition requires a hundred members of the selectorate, the leader can only offer each of them $10 of private goods and they would prefer that she provide the public good. The pool of resources devoted to private goods is spread more thinly as the size of the winning coalition increases, and so producing more public goods becomes a more attractive way for a leader to produce value for the members of her coalition. Of course in reality all policies contain aspects of public and private goods. Even those aspects of public policy, such as national defence, that benefit all members of society often provide private benefits for those who provide them. 7 A core feature of our study is how institutions affect the relative mix of public and private goods in public policy. While defence contractors profit from government contracts, the extent to which they receive private benefits depends upon whether contracts are put up for public bid or are awarded to cronies without regard for the quality of the product or size of the cost overrun. Such tradeoffs are a central aspect of all public policy. Robert Bates, for example, describes how many African governments use agricultural policy to reward supporters. 8 Rather than allowing the market to decide prices, market boards act 6 We can think of mixed goods produced by government action those with both public and private aspects as an allocation of some public and some private goods by the leader. 7 Peter H. Aranson and Peter C. Ordeshook, Public Interest, Private Interest, and the Democratic Polity, in Roger Benjamin and Stephen Elkin, eds, The Democratic State (Lawrence: The University Press of Kansas, 1985), pp Robert H. Bates, Markets and States in Tropical Africa: The Politics Basis of Agricultural Policies (Berkeley: University of California Press, 1986). Political Institutions, Policy and Survival of Leaders 563 as monopsonies, buying all crops from farmers at a fixed price, usually below the world market price. To maintain production at these artifically low prices governments provide a variety of subsidies such as low cost loans, subsidized fertilizer, subsidized seed and access to irrigation. While all producers benefit from a higher price, governments control access to subsidies, enabling them to privilege some farmers and not others. Our second central intuition is that the loyalty of members of the leader s coalition increases as the size of the selectorate increases, holding the size of the winning coalition fixed. Should the challenger replace the leader, members of his coalition now cannot be certain that they will be included in his winning coalition, and so continue receiving private goods in the future. The risk of exclusion rises with the size of the selectorate because the challenger has more choices of whom to include in his coalition after he becomes the leader. Although a challenger can make promises to those who defect from the leader s coalition to support his challenge, they cannot be certain he will honor those promises should his challenge succeed. This risk of exclusion means that the challenger must offer members of the leader s coalition more than the leader has offered them to convince them to support the challenge. We model this uncertainty about the future composition by assuming that all members of the selectorate have an affinity for each leader and challenger. This affinity covers any value that a member of the selectorate could derive from a leader in office, from personal friendship to ideological similarity. It gives the leader a reason to choose those selectors with high affinity for herself because they are more difficult to induce to defect from her coalition. We assume that affinities for the current leader are known, but those for the challenger are unknown, being revealed only if and after the challenger becomes the new leader. 9 This assumption leads to the risk coalition members face of exclusion from future private goods if they defect to the challenger. In equilibrium, this risk is W/S, the size of a winning coalition over the size of the selectorate. The smaller that W/S is, the greater the risk and cost associated with defecting to a challenger and, therefore, the stronger the loyalty to the incumbent. Our model makes simplifying assumptions on the problems described above. First, we assume that all members of the selectorate are identical in their tastes for public and private goods and in their contribution to making a winning coalition. Secondly, we assume that all members of the leader s coalition receive equal amounts of private goods. Thirdly, we assume that affinities for the challenger are unknown when members of the selectorate must choose between the leader and the challenger. All of these simplifying assumptions reduce the technical complexity of the model while retaining our central intuitions. We have developed complementary models to this one that explore the significance of these issues for our argument In Bueno de Mesquita et al., The Logic of Political Survival, we relax these restrictions and investigate how alternative affinity assumptions influence leadership survival prospects and the other central comparative static results from our model. 10 Bueno de Mesquita et al., The Logic of Political Survival. 564 BUENO DE MESQUITA, MORROW, SIVERSON AND SMITH THE SELECTORATE MODEL The model is an infinitely repeated game for which we define a single round here. A nation is composed of N residents, divided between the selectorate and all others. The selectorate consists of S members. The incumbent L is kept in power by a winning coalition of members of the selectorate, where each member of the selectorate has equal weight in contributing to the winning coalition. For the current round, we denote the members of L s winning coalition as W L and those in the challenger s coalition as W c. Throughout, the subscripts L and c refer to the incumbent and challenger respectively. For convenience, we refer to L as she and C as he. The model has a total of S 2 actors per round. In each period there are R (R 0) resources available. A round begins with leader L specifying a coalition W L (W L S) and allocating x L public goods and g L private benefits to each member of her coalition. To reduce notation, we let the letter denoting a set, say X, refer both to the set X and the cardinality of the set X. Where there is a risk of confusion we denote cardinality explicitly by X. The incumbent s expenditure of public and private goods is M L px L W L g L. Leader L retains any remaining resources (R M L ) for her discretionary purposes. Next, C specifies a coalition, W c, and proposes a provision of x c public goods and g c private goods to each member of his coalition, in a parallel fashion to L. We denote these choices as x c, g c,w c, M c. The members of S simultaneously select L or C to be their leader, and the winner implements his or her allocation, ending the round. The rules for selecting between L and C the deposition rules retain L in office unless fewer than W members of W L choose L and there are at least W members of W c who choose C. The incumbent L s utility for retaining office is Ψ R M L where Ψ 0 and represents the ben
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