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

An important implication is that government investment in physical capital calls for
increasing numbers of activists. The intuition behind this result is that, with a substantial
degree of complementarity between effective labor input and capital, more activists-
supervisors have to be hired to elicit additional effort from workers to match an increase in
capital. The opposite is true with respect to an increase in the labor force, since activists-
supervisors are technically substitutes for crude labor input by assumption. Note also that the
marginal effect of an increase in the capital-labor ratio on the magnitude of FL L/F, and
consequently on the position of X(Na), curves diminishes as the capital-labor ratio increases.
This means that the link between investment policy and the recruitment of activists is going to
weaken with the accumulation of capital in the economy.

2.5. Bosses’ participation constraint and regime change

I now turn to the discussion of conditions that make the equilibrium in the political
market unattainable. An alternative to the regime with collective ownership and rotation of
the ruling bureaucracy is the one that is based on private property rights and lacks the support
of activists. Rational bosses will choose not to renew the contract with the activists if the
latter option promises an absolute advantage over the former. Let us assume that the bosses
have a time horizon of Tm, which is determined exogenously and reflects the perceived
stability of the regime. Tm may be infinite (if the current regime is believed to be everlasting)
and in any case: Tm > Tb. The bosses choose to enter into a promotion contract with the
workers at a moment T=0 if the rents accumulated over the period of tenure, Tb, are expected
to exceed those in the absence of activists’ support (R0 per period of time for Tm periods):

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