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?