ECONOMY

842 international conflict
3.3 Institutional Incentives
Bueno de Mesquita et al. (1999, 2003) suggest an institutional theory in which all states
can be seen as governed by a tenure-maximizing leader who relies on a coalition of
core supporters to remain in power. The core supporters—the winning coalition—
are drawn from a larger pool that they call the selectorate. They examine how institutions
alter the incentives of leaders in domestic affairs and international politics.
Their so-called selectorate theory posits that leaders want to maximize their survival
time in office (and secondarily their income from office). Leaders are responsible for
raising revenues and spending those revenues in the name of the state, with their
taxing and spending decisions driven by their interest in staying in power. This theory
focuses on how different political arrangements—like democracy (i.e. a system in
which leaders depend on a large winning coalition) or autocracy (in which leaders
depend on a small coalition, possibly drawn from a large or a small selectorate)—
shape how incumbents tax, allocate revenues, and choose courses of foreign policy
action.
All leaders raise and allocate revenues to three basic spending categories according
to the selectorate theory:
1. Public goods that benefit all members of society (e.g. national defense, rule of
law, protection of civil liberties);
2. Private goods that benefit those whose support is essential to keep the leader
in office (e.g. the use of nepotism, privileged access to contracts, rent-seeking
opportunities, discriminatory tax policies to benefit the so-called winning coalition);
and
3. Discretionary funds that are at the disposal of the incumbent leader (e.g. secret
bank accounts, lavish lifestyles, political rainy-day funds).
When leaders rely on only a few people to keep them in office then it proves most
efficient for the incumbent to buy their support by providing the coalition’s members
with lots of private benefits in exchange for loyalty. When domestic political institutions
compel a leader to have a broad base of support—as is true in democracies—
then purchasing loyalty through private rewards is an inefficient way to stay in power
(Lake 1992; Robinson 1998; Robinson and Verdier 2002; Bueno de Mesquita et al.
2003). Democratic leaders would have to spread the private rewards across so many
people that each would receive too little to be influenced to remain loyal to the
incumbent. In such a situation, it is more efficient for leaders to rely on public goods
as their best means to retain office. But when a leader needs many supporters, each
supporter knows that he or she also has excellent prospects of being essential to the
political success of a politician who challenges the incumbent for office. Conversely,
when a leader only needs backing from a few people to stay in power, those few
people are loyal both because they are getting well rewarded for their support and
because they face a high risk of losing their privileges if another politician succeeds
in toppling the incumbent regime. Thus, autocrats spend more resources on private
goods than on public goods as compared to democrats; they enjoy strong loyalty