Centralized Institutions and Sudden Change

Abstract

Why do sudden and massive social, economic, and political changes occur when and where they do? Are there institutional preconditions that encourage such changes when present and discourage such changes when absent? In this paper, I employ a general model which suggests that massive equilibrium changes are more likely to occur in regimes with centralized coercive power - those with the ability to impose more than one type of sanction (economic, legal, political, social, or religious). On the one hand, centralized authorities are often better able to suppress subversive actions by the citizenry when external shocks are small or do not affect many, as citizens have little incentive to incur numerous types of sanctions. However, citizens in such regimes are also more likely to lie about their internal preferences (e.g., falsely declare loyalty to an oppressive government), and authorities have less incentive to accommodate dissent than in decentralized regimes. This entails that large shocks which encourage some individuals to transgress the authorities' dictates may trigger a massive equilibrium change - as more individuals change actions, social pressures encourage even more to change, and a new, substantively different outcome emerges. The model is applied to the occurrence and severity of protests that followed austerity measures taken in developing nations since the 1970s.

Keywords: Institutions, centralization, austerity, protests, revolution, preference falsification, legitimacy

JEL Classification: D71, D74, H11, H89, K19, P59, Z10