Military Moral Hazard and the Fate of Empires

A contrast between the Roman and Chinese empires is that the military was empowered in Rome and disempowered in China. To explain the difference, this paper considers a principal-agent model where the military may revolt, the civilians may shirk, and the social planner chooses a degree of military empowerment, which affects the military’s capability to defend, and that to usurp, the empire. It is proved that, according to the social optimum, the wealthier is the empire relative to the peripheral adversaries, the weaker her military should be. Hence the military divergence between the two empires, as well as the military inferiority of imperial China when she eventually collided with the West, is traced back to the different environments they faced, with imperial China surrounded by more indigent adversaries. This explanation is consistent with historical data constructed from records of battles and city sizes. ∗Department of Economics, University of Western Ontario, London, Ontario, [email protected], http://economics.uwo.ca/faculty/zheng/.