Political Rents, Promotion Incentives, and Support for a Non-Democratic Regime

Z(ω ) such as Z(0) = 0. The population is homogeneous with respect to all other behavioral
parameters. In particular, all agents are risk-neutral and discount the future exponentially at
the rate r.

Following the approach outlined in the previous Section, I assume that the terms of
and the returns to the activist service - and consequently the number of activists at any given
moment in time - are determined by an implicit contract between the bosses and the activists.
This contract offers the participating activists a possibility of promotion into a boss position
after Ta years of service and limits the bosses’ tenures to Tb years in order to facilitate
promotion.¹¹ The probability of promotion is π. Therefore, at the time the contract matures,
πNa activists become bosses, while (1-π) Na rejoin the ranks of ordinary workers.

All agents maximize the expected utilities of residual life-time incomes. The contract
satisfies the participation constraints as long as (a) an activist’s disutility is compensated by
expected rents after the end of service and (b) extra rents due to activist services compensate
incumbent bosses for the loss of rents after retirement. In the absence of contract-based
exchange between the bosses and the working population, the former never retire (Tb is
infinite)¹² and acquire the rents equal to R0, while the latter earn W forever. There is no

¹¹ Instead of assuming fixed activist effort, variable disutility of service, and random promotion, it
could be assumed that the workers’ heterogeneity in ability translates into differential productivity in
the capacity of an activist, in the spirit of the rank-order wage tournaments (Lazear and Rosen 1981).
In the latter model, entry-level employees can compete for promotion to a higher-wage level by
exhibiting varying levels of effort, and the winners - the top N performers - get promotion with
probability 1. Both incentive schemes have similar effects as long as an individual worker has little
information on the actions of the others and the distribution of ability within the population. The
implications would differ with respect to the properties of the bosses: under my approach, average
ability of the bosses equals the population average, while wage tournaments should produce an elite in
terms of ability. Discussion of this issue goes beyond the scope of this paper.

¹² Infinite tenure means practically that the bosses are able to bequeath their positions at their
discretion.

13

<<   11   12   13   14   15   16   17   >>

More intriguing information