Calculating Bandits: Quasi-Corporate Governance and Institutional Selection in Autocracies

Advances in Austrian Economics 19 2015: 193-213

28 Pages Posted: 7 Oct 2014 Last revised: 10 Aug 2015

See all articles by Alexander William Salter

Alexander William Salter

Texas Tech University - Rawls College of Business; American Institute for Economic Research

Abigail Hall

University of Tampa; George Mason University

Date Written: August 9, 2015

Abstract

This paper applies the logic of economic calculation to the actions of autocrats. We model autocrats as stationary bandits who use profit and loss calculations to select institutions that maximize their extraction rents. We find in many cases autocrats achieve rent maximization through creating and protecting private property rights. This in turn yields high levels of production, with expropriation kept low enough to incentivize continued high production. Importantly, while this leads to increasing quantities of available goods and services over time, it does not lead to true development; i.e. the coordination of consumer demand with producer supply through directing resources to their highest-valued uses. We apply our model to the authoritarian governments of Singapore and the United Arab Emirates, showing how they function as quasi-corporate governance organizations in the business of maximizing appropriable rents.

Keywords: Autocracy, Development, Economic Growth, Institutional Selection, Stationary Bandit, Singapore, United Arab Emirates

JEL Classification: D73, O10, O40, P51

Suggested Citation

Salter, Alexander William and Hall, Abigail, Calculating Bandits: Quasi-Corporate Governance and Institutional Selection in Autocracies (August 9, 2015). Advances in Austrian Economics 19 2015: 193-213. Available at SSRN: https://ssrn.com/abstract=2506028 or http://dx.doi.org/10.2139/ssrn.2506028

Alexander William Salter (Contact Author)

Texas Tech University - Rawls College of Business ( email )

Lubbock, TX 79409
United States

HOME PAGE: http://awsalter.com

American Institute for Economic Research

PO Box 1000
Great Barrington, MA 01230
United States

Abigail Hall

University of Tampa ( email )

George Mason University ( email )

4400 University Drive
Fairfax, VA 22030
United States

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