DARON ACEMOGLU
GEORGY EGOROV
KONSTANTIN SONIN
We study dynamic selection of governments under different political institutions,
with a special focus on institutional “flexibility.” A government consists of a
subset of the individuals in the society. The competence level of the government in
office determines collective utilities (e.g., by determining the amount and quality
of public goods), and each individual derives additional utility from being part of
the government (e.g., rents from holding office). We characterize the dynamic evolution
of governments and determine the structure of stable governments, which
arise and persist in equilibrium. In our model, perfect democracy, where current
members of the government do not have veto power over changes in governments,
always leads to the emergence of the most competent government. However, any
deviation from perfect democracy, to any regime with incumbency veto power,
destroys this result. There is always at least one other, less competent government
that is also stable and can persist forever, and even the least competent
government can persist forever in office. We also show that there is a nonmonotonic
relationship between the degree of incumbency veto power and the quality
of government. In contrast, in the presence of stochastic shocks or changes in the
environment, a regime with less incumbency veto power has greater flexibility and
greater probability that high-competence governments will come to power. This result
suggests that a particular advantage of “democratic regimes” (with a limited
number of veto players) may be their greater adaptability to changes rather than
their performance under given conditions. Finally, we show that “royalty-like” dictatorships
may be more successful than “junta-like” dictatorships because in these
regimes veto players are less afraid of change.