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
Date Written: August 9, 2015
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: Suggested Citation