Predatory States and Failing States: An Agency Perspective

In any non-trivial state, policies decided at the top levels of government are administered by middle-level bureaucrats. I examine whether this agency problem can contribute to explaining state failure in matters of provision of public goods. I find some theoretical arguments to support the view that failure is more likely in states whose top rulers have predatory motives. When the bureaucrats’ cost of providing the public good is their private information, rulers must give them incentive rents to achieve truthful revelation. Predatory rulers are less willing to part with such rents; therefore they tolerate more downward distortion in the provision of public goods to reduce the required rent-sharing. When the bureaucrats’ actions are also unobservable, there is a synergistic interaction between more benevolent rulers and more caring or professional bureaucrats. However, these effects manifest themselves differently and to different degrees under different conditions of information. Therefore precise explanations or predictions in individual instances require context-specific analyses. Address of author: Avinash Dixit, Department of Economics, Princeton University, Princeton, NJ 08544–1021, USA. Phone: 609-258-4013. Fax: 609-258-6419. E-mail: [email protected] Web: http://www.princeton.edu/ ̃ dixitak/home ∗I thank Pedro Dal Bó, Jeffry Frieden, Karla Hoff, Rebecca Morton, James Rauch, Jean Tirole, Thomas Romer, and seminar audiences at Boston College, Brown University, and the Hebrew University of Jerusalem for comments on earlier versions, and the National Science Foundation for research support.