Preventive Repression: Two Types of Moral Hazard

Abstract

Authoritarian regimes maintain their grip on power primarily through preventive repression routinely exercised by specialized security agencies, with the aim of preventing any opposition from organizing and becoming public. We develop a formal model to analyze the moral hazard problems inherent in the principal-agent relationship between rulers and their security agents in charge of preventive repression. The model distinguishes two types of moral hazard: "politics," by which the agents (security agencies) can exert political influence to increase their payoff by decreasing the ruler's payoff, and "corruption," by which the agents can increase their payoff by engaging in rent-seeking activities that do not decrease the ruler's payoff. The surprising conclusion is that both the ruler and the security agent are better off when the only moral hazard problem available is politics rather than when the agent can choose between politics and corruption. We also show that the equilibrium probability of regime survival is higher when politics is the only moral hazard available to the agent. These findings lead to our central conclusion that opportunities for corruption undermine authoritarian regimes by distorting the incentives of the security agencies tasked with preventing domestic opposition.

Keywords: Moral Hazard, Authoritarian Regimes, Corruption, Repression

JEL Classification: D72