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\title{Institutions, Incentives, and Power}


\author{}
% Ethan Bueno de Mesquita\\  \small{University of Chicago}}




\date[]% (optional, should be abbreviation of conference name)

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\begin{document}

\begin{frame}
  \titlepage
\end{frame}


\begin{frame}{High Level Institutions}

\textbf{Selectorate}: The portion of the population that has some chance of playing a role in the selection of the leader.

\

\textbf{Winning Coalition}: The portion of the Selectorate needed to  keep a leader in power. 


\end{frame}

\begin{frame}{Typology}
	
	Democracy
			\begin{itemize}
				\item Selectorate: Adult Citizens
				\its Winning Coalition: Majority (or plurality) of voters
			\end{itemize}
			
\

Autocracies
		\begin{itemize}
			\item Selectorate: Party members
			\its Winning Coalition: Central committee
		\end{itemize}

\

Juntas or monarchies
		\begin{itemize}
			\item Selectorate: Military offices or nobles/clergy
			\its Winning Coalition: Some critical group of generals and colonels or barons and bishops
		\end{itemize}
\end{frame}


\begin{frame}{Two Types of Public Policy}
	
	
	Public Goods
	
	\
	
	Private Goods to members of winning coalition
	

\end{frame}
	

\begin{frame}{Basic Argument}
	
	Leaders choose mix of private and public goods to keep WC from defecting to challenger
	
	\
	
	With small WC  inexpensive to do so with private goods 
		\begin{itemize}
			\item Bad policy is good politics
		\end{itemize}
		
	\
	
	With large WC too expensive to provide private goods
		\begin{itemize}
			\item Good policy is good politics
			\end{itemize}
	\end{frame} 

\begin{frame}{Policy and Leader Survival}

\begin{figure}
	\begin{center}
		\includegraphics[scale=.22]{figures/select1.pdf}
		\includegraphics[scale=.22]{figures/select2.pdf}

\end{center}
\end{figure}
\end{frame}

\section{The Model}

\begin{frame}{A Selectorate Model}

Incumbent leader ($L$),  Challenger ($C$), and Selectorate of size $S$ 

\

$L$ has winning coalition of size $W < S$

\

Government has resources $R >S$ 
\end{frame}


\begin{frame}{Strategies}
	
	Each politician proposes a policy
	 	\begin{itemize}
			\item Public goods ($g$) 
			\its Private goods ($x$) to be provided to each member of the politician's winning coalition
		\[ pg + Wx \leq R\]
			\end{itemize}
			
		\
		
		Each member of the Selectorate  chooses which politician to support
		
\end{frame}

\begin{frame}{Leadership Transition}
		
		$L$ loses power if and only if the following two things both happen:

\begin{enumerate}
	\item The challenger gets the support of a group of size $W$.
	\item The leader loses the support of at least one member of her winning coalition. 
\end{enumerate}

\

$L$ is committed to her WC

\

Each member of  Selectorate is equally likely to end up in the challenger's winning coalition
\end{frame}


\begin{frame}{Payoffs}
Winning Coalition member:
\[ U_W(x, g) = x + \ln g\]

\

Selectorate member not in WC:

\[ U_S(x,g) = \ln g \]

\

Politician in office:
\[ B + u(R - pg - Wx)\]


\end{frame}


\section{Analysis}
\begin{frame}{Steps in the Analysis}
	
\begin{enumerate}
	\item Any Politician (Leader or Challenger) wants to allocate whatever money she spends  between public and private goods in a way 
	that maximizes the welfare of the Leader's WC. For an arbitrary level of spending, how do the Leader's and Challenger's allocations differ?
	
	\its The Challenger will offer his optimal allocation of the full budget, $R$. 
	
	\its If the Leader were to offer her optimal allocation of the full budget, the members of her WC would strictly prefer her to the Challenger. So she can offer less and still 
	retain power. 

	\its How much does the Leader spend, and on what, as a function of the institutions (i.e. $W$ and $S$)?
\end{enumerate}
\end{frame}

\subsection{The Politicians' Optimal Allocations}

\begin{frame}{Challenger's Optimal Allocation of $\Delta$}
	

\[ \max_{(g,x)}\frac{W}{S}x + \ln g \mbox{\ \ \ subject to } pg + Wx = \Delta\]

\pause \[ \left(pg + Wx = \Delta \Rightarrow x = \frac{\Delta - pg}{W}\right)\]


\pause \[ \max_g \frac{W}{S}\times \frac{\Delta - pg}{W} + \ln g\]

\pause \[ \frac{1}{g^C} = \frac{p}{S} \]

\[ g^C = \frac{S}{p} \ \ \ \ \ x^C = \frac{
\Delta -S}{W}.\]
\end{frame}


\begin{frame}{Leader's Optimal Allocation of $\Delta$}

	\[ \max_{x,g} x + \ln g \ \ \ \ \mbox{subject to $ Wx + pg= \Delta$}.\]
	
	\[ \left(pg + Wx = \Delta \Rightarrow x = \frac{\Delta - pg}{W}\right)\]
	
	
	\[ \max_g \frac{\Delta -pg}{W} + \ln g\]

	\[ \frac{p}{W} = \frac{1}{g}\]
	
	\[  g^L = \frac{W}{p} \ \ \ \ \ x^L = \frac{\Delta - W}{W}\]
	
	
\end{frame}



\begin{frame}{Comparing Challenger's and Leader's Optimal Allocations}
	\[ g^C = \frac{S}{p} \ \ \ \ \ x^C = \frac{\Delta -S}{W}.\]
	
	\[  g^L = \frac{W}{p} \ \ \ \ \ x^L = \frac{\Delta - W}{W}\]
	
	\
	
	Leader gets larger benefit from private goods because of commitment
	
	\
	
	Especially acute when $W$ is small
\end{frame}

\subsection{Equilibrium Proposals}

\begin{frame}{The Challenger's Proposal}
	
	The best the Challenger can do is to choose his optimal allocation of the full budget
	
	\
	
		Expected payoff to a member of Leader's WC from the Challenger winning is:
		
	\[ \frac{W}{S}\times \frac{R-S}{W} + \ln \frac{S}{p} = \frac{R-S}{S} + \ln \frac{S}{p} \equiv \ov{U}^C\]
\end{frame}

\begin{frame}{The Leader Need Not Spend the Whole Budget}

If Leader offers to optimally allocate the full budget, her allocation solves:

\[ \max_g \frac{R -pg}{W} + \ln g\]

	\

Expected payoff to a member of Leader's WC from the Leader winning is:
	
\[  \frac{R-W}{W} + \ln \frac{W}{p} \]

\

The payoff from the Leader must be higher than from Challenger, since it was chosen to maximize the WC member's welfare when Leader is in office
\end{frame}

\begin{frame}{The Winning Proposal}

The Leader will not allocate her whole budget

\


Leader spends some amount, $\Delta^*$, satisfying:

 \[\frac{\Delta^* - W}{W} + \ln \frac{W}{P} =  \ov{U}^C\]

\[ \Delta^* = W\left(\ov{U}^C +1 - \ln\frac{W}{p}\right)\]
\end{frame}

\subsection{Outcomes}

\begin{frame}{Outcomes and Institutions}


Total government  spending increasing in  size of the winning coalition

\

Public goods  increasing in  size of  winning coalition

\

Private goods  decreasing in  
	size of  winning coalition
	
	\

Welfare of population members not in WC increasing in  size of  winning coalition

\

Large winning coalition $\rightarrow$ good policy is good politics

\

Small winning coalition $\rightarrow$  good policy is bad policy 
\end{frame}


\section{Institutions and Outcomes: Some Evidence}
\begin{frame}{Institutions and Development: An Empirical Strategy }
		 Mortality at the time of colonization affected settlement patterns.
		
		\
		
		 Settlement patterns affected historic institutions.
		
		
		\
		
		 Historic in	stitutions affect modern institutions. 
		
		\
		
		 Modern institutions, we believe, affect economic outcomes. 
		
	\end{frame}



\begin{frame}{Settler Mortality and Modern Economy}
\begin{figure}
	\begin{center}
		\includegraphics[width=.9\textwidth]{figures/ajr-reduced.pdf}
	\end{center}
\end{figure}
\end{frame}


\begin{frame}{Settler Mortality and Modern Institutions}
	
	\begin{figure}
	\begin{center}
		\includegraphics[width = .9\textwidth]{figures/ajr-first-stage.pdf}
	\end{center}
\end{figure}
\end{frame}


\begin{frame}{Modern Institutions and Modern Economies}
	
	Good institutions seem 
to lead to better economic outcomes

\

Moving from the twenty-fifth percentile to the seventy-fifth percentile in quality of institutions, yields a seven-fold 
increase in GDP

\begin{itemize}
	\item Nigeria to Chile. 
\end{itemize}

\end{frame}

\begin{frame}{A Possible Problem: Human Capital}

\begin{figure}
	\begin{center}
		\includegraphics[scale=1.25]{figures/ajr-human.pdf}
	\end{center}
\end{figure}
\end{frame}



\begin{frame}{Take Aways}
	
Different institutions create different incentives for leaders seeking to retain power

\

When power depends on the support of a small number of people, good policy is bad politics

\

When power depends on the support of a large number of people, good policy is good politics

 




\end{frame}








\end{document}