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- Title
Moral Hazard in High Office and the Dynamics of Aristocracy.
- Authors
Myerson, Roger B.
- Abstract
Both aristocratic privileges and constitutional constraints in traditional monarchies can be derived from a ruler's incentive to minimize expected costs of moral-hazard rents for high officials. We consider a dynamic moral-hazard model of governors serving a sovereign prince, who must deter them from rebellion and hidden corruption which could cause costly crises. To minimize costs, a governor's rewards for good performance should be deferred up to the maximal credit that the prince can be trusted to pay. In the long run, we find that high officials can become an entrenched aristocracy with low turnover and large claims on the ruler. Dismissals for bad performance should be randomized to avoid inciting rebellions, but the prince can profit from reselling vacant offices, and so his decisions to dismiss high officials require institutionalized monitoring. A soft budget constraint that forgives losses for low-credit governors can become efficient when costs of corruption are low.
- Subjects
ARISTOCRACY (Political science); POLITICAL systems; MONARCHY; OFFICE buildings; COMMERCIAL buildings
- Publication
Econometrica, 2015, Vol 83, Issue 6, p2083
- ISSN
0012-9682
- Publication type
Article
- DOI
10.3982/ECTA9737