Federalism and Incentives for Success of Democracy

Success and failure of democracy are interpreted as different equilibria of a dynamic political game with cost of changing leadership and incomplete information about politicians’ virtue. Unitary democracy can be frustrated when voters do not replace corrupt leaders, because any new leader would probably also govern corruptly. However, federal democracy cannot be consistently frustrated at both national and provincial levels, because provincial leaders who govern responsibly could build reputations to become contenders for higher national office. Similarly, democracy cannot be consistently frustrated in a democratization process that begins with decentralized provincial democracy and only later introduces nationally elected leadership. Countries in transition that have aimed for national elections as a first step (Bosnia for example) have bogged down and generally handed power over to avatars of the old regime. By contrast, Kosovo and East Timor began with local elections, with a far better result of bringing forward new talents and capabilities, and giving people a sense of empowerment. Final Report on the Transition to Democracy in Iraq (2002, p. 24). This paper is a theoretical study of the problems of democratization. Our basic question is how the chances of success for a new democracy may depend on the division of powers in its constitution.A democratic constitution defines the rules of the game that politicians must play to win power and to use it. With game-theoretic analysis, we can study the ways in which a change of constitutional structure could affect the rational competitive behavior of politicians. In this article, I analyze differences in the sets of equilibria that are generated by some simple game models of unitary and federal democracy. Our main MS submitted 7 February 2005; final version received 28 August 2005 ISSN 1554-0626; DOI 10.1561/100.00000002 © 2006 now Publishers.