If one were dictator, how should one organize one’s rule to maximize one’s benefit (once one starts `oneing’ one must continue `oneing’ until the end of one’s sentence)? My instinct says one should essentially set up a free market (except perhaps in media) and tax the returns (presumably choose the optimal tax). In short, the optimal dictator stays out of commerce. However, this is not the way most dictators do it. Many of them decide to run their own commercial enterprises and use their monopoly on violence to hinder the competition. Why?
My colleague Daniel Diermeier suggests that it may have to do with the ability to tax. If tax collection is inefficient, the dictator would prefer direct control over the means of production. Yet another colleague, Mark Satterthwaite, suggests overreach. Dictators by their nature are prone to place more confidence in their own abilities than is warranted. A third explanation, from Roger Myerson, by way of Tim Feddersen, is that Dictators have henchman who must be rewarded for their loyalty. These rewards take the form of ownership of assets (although its not clear why you can’t just pay to keep the goons to stay in their barracks until needed).
Perhaps, we have examples of dictators of the variety I have in mind: Lee Kuan Yew. If so, why not more of them? That is, why do many of them choose to emulate Uncle Joe instead? Could the PRC be an example of a country moving to this form of dictatorship?
19 comments
January 10, 2011 at 4:20 pm
Robert Johnson
Bruce Bueno de Mesquita has some thinking on this subject. There’s some info here: http://en.wikipedia.org/wiki/Selectorate_theory
January 11, 2011 at 12:25 pm
rvohra
Ummm, was aware of it. However that deals with distribution of `goodies’. The question is why do the goodies have to be the management of, say, Yukos.
January 10, 2011 at 4:22 pm
Jonathan Weinstein
As I remember Roger’s paper, the “dictator” (a king in his case, which may be different) must give his courtiers the power to overthrow him if he fails to compensate them. Why? Otherwise his promises to them lack all credibility. There has to be a delicate balance of power for him to get the cooperation he needs.
January 11, 2011 at 12:26 pm
rvohra
Ok, you give the henchmen (or Roger’s more courtly term, Captains) the army and the police, but why have them run the local Coca-Cola franchise.
January 10, 2011 at 4:25 pm
Dave B
You’re neglecting the possibility that a dictator places high utility on the exercise or even abuse of power. Under this model, using the power of the state to run monopolies could well be the utility maximizing strategy.
January 11, 2011 at 12:27 pm
rvohra
Yes. A natural suspicion of explanations that rely on putting stuff into the utility function. Its hard to know when to stop.
January 10, 2011 at 11:53 pm
Burkhard C. Schipper
An absolute dictator is somebody who dictates the price of everything. (S)he has the power to set the price of any kind of behavior. (In particular a dictator will set the price of a revolution at a very high level.) If the dictator is omniscient, (s)he could dictate efficient behavior and confiscate the surplus. But usually dictators are not omniscient, and this lack of information limits the power of a dictator. (S)he is forced to share some power if (s)he wants to maximize.
Dictators tried to “educate” people in order to “homogenize” preferences (often with ideologies). If preferences are homogeneous (in particular aligned with the dictator), then essentially the dictator becomes omniscient. But fortunately, dictators did not find a way yet to educate people perfectly. So again, we should not be surprised to find many forms of non-pure inefficient dictatorships (which government isn’t?).
January 11, 2011 at 12:33 pm
rvohra
Dear Burkhard
While the dictator may have the power, they don’t have to exercise it. The dictator could also deal with the private information problem by implementing the optimal incentive compatible mechanism. More generally, I had in mind the Dictator letting the market solve the problems of dispersed information and moral hazard. But lets grant that the Dictator must share power. Why must sharing power involve control rights over the means of production?
January 12, 2011 at 12:18 am
Burkhard C. Schipper
I guess for me is a dictator somebody who has a strong taste for power, somebody who does not sell power cheaply.
But if a dictator is willing to share power for material things and his control of the means of production is inefficient, why should we see bloody revolutions at all? Couldn’t the citizens propose him to cease power in return for a large share of the increased surplus? That is, they could simply buy him off. Perhaps an example is a peaceful transition to a constitutional monarchy. But a stark counter example is the Democratic Peoples Republic of Korea, where a regime change could create a huge surplus (if we assume that it could become similar to South Korea). A possible explanation would be the wealth effect. Dictators are usually very rich. The marginal benefit of becoming even richer is probably much lower than the marginal cost of ceasing control. Similar to CEOs of hedgefunds, it is difficult to still motivate them with finite sums of money.
January 13, 2011 at 11:16 pm
rvohra
Burkhard
I have an answer to the first point, about why the citizens don’t buy off the dictator. It is a public goods problem. The second point you make, is related, I think, to Dave B.’s suggestions earlier. I don’t have a response to that.
January 14, 2011 at 12:28 am
Burkhard C. Schipper
But the public goods problem in starting a revolution is arguably even bigger but we saw revolutions in the past. Wouldn’t every citizen be happy for not having potentially contribute her/his life to the public good of regime change?
(There is no reply button anymore. It seems there is only a finite depth of discussions allowed.)
January 11, 2011 at 2:10 am
MMP
My Theory: The person doing the commerce still gathers a majority of the profit (1- dictator’s tax). With enough gathering, he can become a cash center. And this can threaten the dictator’s political power.I suspect that most dictators don’t object to small scale free enterprise. They only control large free enterprise, and/or the ability of small scare enterprise to reach large (at which point they’re more difficult to control).
If a large company could credibly commit to staying out of the dictator’s way, it could be allowed (Putin’s Russia), but such credible commitments are hard to come by, and when they do go wrong you get an almighty mess with one billionaire in jail and another running to buy a nearly defunct NBA franchise (Putin’s Russia).
January 11, 2011 at 12:42 pm
rvohra
Ok, little shopkeepers are not a threat, but a Bill Gates might be. This concern does not seem so different from the concerns of the trust busters at the turn of the last century in the US. So, couldn’t one counter this with dispersed ownership, encouraging competition and maintaining the monopoly on violence and media?
January 13, 2011 at 8:43 pm
jimmy
“If one were dictator, how should one organize one’s rule to maximize one’s benefit (once one starts `oneing’ one must continue `oneing’ until the end of one’s sentence)? My instinct says one should essentially set up a free market (except perhaps in media) and tax the returns (presumably choose the optimal tax).”
Your instinct is wrong. A dictator would use the revelation principle to set up the optimal profit-maximizing scheme. As a self-appointed expert in mechanism design, you should know this leads to cremer-mclean if there is correlation or some variant on second or third degree price discrimination if there is not. Nothing like the market and something closer to what one observes.
January 13, 2011 at 11:06 pm
rvohra
Dear Jimmy
Because I’m a self appointed expert as opposed to a anointed one, I lack the courage to take the prescriptions of mechanism design literally. Such is the case here. The Cremer-Mclean mechanism, clever though it is, is a fragile thing. The criticisms of it are well known, so I will not dwell upon them here. A larger point, is that in relying on Cremer-Mclean, one is making the assumption that the only problem the dictator faces is one of hidden information. The dictator, however, must also get people to do things.
January 14, 2011 at 12:50 pm
jimmy
Yes, the dictator must get people to do things. But the prescriptions of moral hazard theory also do not imply a free market.
Also, note that the other obvious optimal mechanisms apart from cremer-mclean, fragile as it is, imply some form of price discrimination, i.e. a monopoly solution.
In any case, your initial instinct is wrong.
January 14, 2011 at 2:49 pm
rvohra
Can’t argue with conviction. I would note that the prescriptions of moral hazard theory usually concern themselves with a single principal and single agent. I don’t see how to rule out immediately, at least, that certain kinds of moral hazard problems cannot be solved with competition amongst principals and amongst agents. But, if I’m wrong, what is the form of optimal dictatorship?
January 14, 2011 at 3:27 pm
jimmy
I am saying you pose a non-puzzle as answers are well known and also fits observations: Adverse selection is the usual tired old story of Myerson and its variants and moral hazard is the usual efficiency wage story (imported into poli sci apparently by Myerson).
December 26, 2011 at 6:22 am
Leisure for all
The Planet will be much improved when people took more time for leisure