prolonged economic stagnation (Germany, Spain). The same factors can lie behind
endogenous democratic transitions. The regime analyzed in this paper, USSR in the 1950s-
60s, is an example of a stable hierarchical regime, probably far removed from its bosses’
participation constraint. However, we are able to observe the impact of the economic
parameters of the promotion contract on the political. Economic development may bring the
equilibrium of such a regime to its participation constraint thus causing a political transition.
In fact, the general logic of modern economic development makes this political development
inevitable. On the one hand, as an economy on the modern growth path becomes more
complex, the rulers gradually lose control over the earnings. If the rates of economic growth
are relatively low, then the bureaucratic premium will decrease. If the rates are high, the
expectations of sustained growth are likely to make the certain earnings of ordinary workers
preferable to the lottery of activist service. In either case the supply of activists is affected
adversely. On the other hand, the demand effect of investment policy fades away with the
accumulation of capital in an economy with a low elasticity of capital-labor substitution.
Adoption of modern labor-substituting technologies reverses this effect altogether. Again, in
either case the economic foundation of a hierarchical regime is bound to decay. It should be
added that throughout this paper the promotion contract was assumed enforcible, while in fact
neither it can be enforced by a third-party due to its implicit nature nor it is in general self-
enforcing. Autocracy (personal dictatorship) can prevent the bureaucrats from renegotiating
the contract thus undermining long-term stability of a regime. However, in the absence of an
extreme threat to the regime, the costs borne by individual bureaucrats under dictatorial rule
are excessive, and they choose oligarchic rule. Unable to keep the tenures of incumbents from
rising, it accelerates the movement towards the abolition of the hierarchical regime in an
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