Tuesday, February 19, 2008

Sovereign Debt and the Siren's Song

Anything I can do.....

....Roger Myerson can do better.

The Autocrat's Credibility Problem and Foundations of the Constitutional

Roger Myerson
American Political Science Review, February 2008, Pages 125-139

A political leader's temptation to deny costly debts to past supporters is a central moral-hazard problem in politics. This paper develops a game-theoretic model to probe the consequences of this moral-hazard problem for leaders who compete to establish political regimes. In contests for power, absolute leaders who are not subject to third-party judgments can credibly recruit only limited support. A leader can do better by organizing supporters into a court which could cause his downfall. In global negotiation-proof equilibria, leaders cannot recruit any supporters without such constitutional checks. Egalitarian norms make recruiting costlier in oligarchies, which become weaker than monarchies. The ruler's power and limitations on entry of new leaders are derived from focal-point effects in games with multiple equilibria. The relationships of trust between leaders and their supporters are personal constitutions which underlie all other political constitutions.

(PDF, if your university or library subscribes)

(nod to KL)


prison rodeo said...

Calls to mind Landes and Posner's "The Independent Judiciary in an Interest-Group Perspective," a paper that had a huge influence on me way back in graduate school.

Anonymous said...

Debt can be an absolute nightmare when it starts to spiral Out of control. It best to get some debt consolidation advice if it starts to affect your health through the stress of it all. Then when your finally out of debt try and make sure it does'nt happen again!