Seminario de Economı́a Polı́tica y Social

Democratization

Camilo Garcı́a-Jimeno

Universidad del Rosario

July 10th, 2018

Democratization, Repression and Institutional Change

I We already saw a simple example of how giving up power

could solve commitment problems in politics.
I More generally, Institutional change can also take place in
several ways, for example when societies democratize (extend
the franchise) or when a coup takes place.
I We have also overlooked the motivations behind demand for
radical political change.

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Acemoglu, Daron y James A. Robinson (2006). Economic Origins
of Dictatorship and Democracy, Caps. 5-7, Cambridge University
Press.

Acemoglu, Daron y James A. Robinson (2000). ‘Why Did the

West Extend the Franchise? Growth, Inequality and Democracy in
Historical Perspective’, Quarterly Journal of Economics, Vol. 115,
No. 4, pp. 1167-1199.

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Democratization, Repression and Institutional Change

I One key source of conflict is the distribution of income.

I Groups holding political power can decide over redistribution,
so holding power is key to achieve a desired allocation.
I Today we will study how institutional change can be the result
of distributive conflict.

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Some patterns of political change: Britain
I This may allow a better understanding of historical events
such as the democratization of the west in the 19th Century.
I The recurrence of coups in Latin American countries in the
20th Century
I Britain in the 19th Century democratized gradually:
I First Reform Act in 1832 eliminates “rotten boroughs” and
increased the electorate to 14% of adult males.
I Second Reform Act in 1867 doubles the electorate.
I Third Reform Act in 1884 expanded the electorate to 60% of
adult males.
I Representation of the People Act in 1918 established universal
suffrage for males 21+ and for ratepayer women 30+.
I Finally universal suffrage for women in 1928.
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Some patterns of political change: Argentina

I After the introduction of the secret ballot in 1912, the

“radicals” came to power and started to dominate politics.
I In 1930 a coup by the Conservatives deposed President
Yrigoyen.
I Another coup in 1943 deposed the Conservatives, led by
Peron.
I Peron was deposed by a military coup in 1955.
I The military allowed civilian governments until 1966 when
another coup took place.

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Some patterns of political change: Argentina

I Peron returned to the Presidency in 1973, died, and his wife

Isabel became president.
I In 1976 a coup led by Gen. Videla deposed Ms. Peron. Lots
of repression ensued.
I In 1981 Gen. Galtieri set a coup against the Gen. that had
succeeded Videla.
I Democratization only came after Argentina’s defeat in the
War of the Falkland Islands in 1983.

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Some patterns of political change: Singapore

I Achieved independence from Britain in 1959, and began with

universal suffrage.
I The People’s Action Party (PAP) won a majority.
I For the subsequent 50 years PAP has increased its control
over Singapore’s politics.
I First undermining the power of Unions, then using outright
coercion of opposition and the media.
I Currently one-party rule, but little opposition or demand for
political change.

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Some patterns of political change: South Africa
I Achieved independence from Britain in 1910.
I From the beginning whites in power began a process of
exclusion of blacks that culminated in full Apartheid in 1948.
I Political organization by blacks also arose right after
independence around the ANC.
I During the 50s and 60s the government attempted to fully
segregate all blacks into 10 ‘homelands’ restricting their
mobility and occupational choices.
I Tight control over the media, and lots of repression well into
the 90s.
I Only after lots of riots, strikes and international sanctions did
whites have to give up Apartheid in 1994.
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Some patterns of political change: South Africa

 
Van  der  Berg,  Servaas  and  Megan  Louw  (2004).  “Changing  Patterns  of  South  African  
Income  Distribution:  Towards  Time-­‐Series  Estimates  of  Distribution  and  Poverty”,  
in  South  African  Journal  of  Economics,  Vol.  72,  No.  3,  pp.  546-­‐572.   10/ 55
Some patterns of political change: South Africa

 
Van  der  Berg,  Servaas  (2010).  “Current  Poverty  and  Income  Distribution  in  the  
Context  of  South  African  History”,  Stellenbosch  Economics  Working  paper  22/10.  
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Some patterns of political change

I These are just four very different trajectories of political

development.
I Acemoglu and Robinson develop a theoretical framework to
try to understand these different patterns.
I They emphasize distributional conflict and inequality.
I Under this framework we can study institutional change and
the emergence of democracy.
I We can also ask when and if democracy will consolidate once
it emerges.

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Acemoglu and Robinson (2000), (2001)

I Start with simple model of non-democratic politics.

I Key features: 2 groups, a small elite that holds power initially,
and a large group of disenfranchised citizens.
I Elite has de jure power but citizens have de facto power
because of their size.
I For example, citizens can undertake collective action.
I This simple framework will lead to a ‘revolution constraint’.
I Elite has income y r , citizens have income y p , y p < y r .
I Mass 1 population, fraction δ < 1/2 are elite members,
fraction 1 − δ are citizens.

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Acemoglu and Robinson (2000), (2001)

I Average income is y .
I We parametrize income inequality with θ:

(1 − θ)y θy
yp = yr =
1−δ δ

which requires θ > δ for y p < y < y r .

I We will assume θ > δ throughout, so that elites are always
hurt by progressive redistribution, and citizens always benefit.

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Acemoglu and Robinson (2000), (2001)

Taxation:
I We restrict the space of fiscal instruments to linear income
taxes τ ≥ 0 and lump-sum transfers T .
I Taxation is distortionary, and we capture the costs of taxation
(incentive effects, ‘leaky bucket’, etc.) with a convex function
C (τ )y .
I Government budget constraint is

T = τ [(1 − δ)y p + δy r ] − C (τ )y = (τ − C (τ ))y

I Budget constraint must balance every period.

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Acemoglu and Robinson (2000), (2001)

Preferences:
I Discrete time, infinite horizon.
I Utility is defined over discounted sum of post-tax income,
with discount factor β ∈ (0, 1):

∞
X
Ui = E β t (1 − τt )y i
t=0

I Indirect utility:

V (y i |τ ) = (1 − τ )y i + (τ − C (τ ))y

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Acemoglu and Robinson (2000), (2001)
I Thus, single-peaked preferences.
I ⇒ Median voter theorem holds. Under democracy, fiscal policy
chosen by the median, which is a citizen since δ < 1/2.
I Under non-democracy, fiscal policy is just chosen by the elite.
I Under non-democracy citizens may influence the equilibrium
choice, but only indirectly through the exercise of their de
facto power (threat of revolution).
I The ideal tax rate of a citizen is implicitly given by

θ−δ
C 0 (τ p ) =
1−δ

I The ideal tax rate of an elite is

τr = 0
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Acemoglu and Robinson (2000), (2001)
Revolution:
I Very simplified environment.
I If revolution is attempted, it always succeeds but fraction µS
of all income is destroyed forever.
I After revolution, citizens receive all remaining income, forever.
I Revolution is an absorbing state.
I Therefore, if a revolution happens, citizens get every period
income
(1 − µS )y
1−δ
I µS is indexed by S ∈ {L, H}, and S will denote the state of
effectiveness of collective action, low or high.
I We assume Pr (S = H) = q, and for simplicity, µL = 1 so in
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periods S = L there is no point in revolting.
Acemoglu and Robinson (2000), (2001)
Revolution and Collective Action:
I The idea is that collective action is transient, and may only be
effective or feasible in some periods (e.g. during economic
crisis, or war).
I Fluctuations in µ capture the uncertainty about when
collective action problem can be solved.
I This will be a source of commitment problems:
I For example, if S = H today, there is a threat of revolution.
Elites may want to appease citizens with concessions.
I But if tomorrow S = L, elite will have an incentive to renege
on that promise.
I Inherent problem in politics because there is no outside party
to enforce any promises.
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Acemoglu and Robinson (2000), (2001)

Timing of Events:
I At each t the timing is:
I µS is revealed.
I Elite set the tax rate τ N (upper-script denotes
‘non-democracy’).
I Citizens decide whether to revolt or not (ρ ∈ {0, 1}, ρ = 1
means revolution).
I If ρ = 1, citizens consume remaining 1 − µS of output forever.
I If ρ = 0 elite remain in power onto next period.

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Acemoglu and Robinson (2000), (2001)
Equilibrium Concept:
I We will focus on Markov Perfect Equilibria.
I Strategies only a function of the current state. Here state
space is {N, R} × {L, H}.
I Elites’ strategy is the tax rate:

τ N : {L, H} → [0, 1]

I (Elite only gets to choose under N).

I Citizens’ strategy is revolution decision:

ρ : {L, H} × [0, 1] → {0, 1}

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Acemoglu and Robinson (2000), (2001)
Payoffs after Revolution
I Define V i (R, µS ) the value of individual in group i ∈ {p, r } if
revolution takes place in period where state is S.
I ⇒
(1 − µS )y
V p (R, S) =
(1 − δ)(1 − β)
I For the elite the value is

V r (R, S) = 0

I Citizens never attempt revolution when S = L since µL = 1.

I We only need to care about the value of revolution under
state H.
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Acemoglu and Robinson (2000), (2001)

I In non-democracy, when S = L, there is no revolution threat.

I In an MPE, elite chooses τ N = 0, so, using the Bellman
equations that exploit the recursive nature of the problem,

V r (N, L) = y r + β [qV r (N, H) + (1 − q)V r (N, L)]

V p (N, L) = y p + β [qV p (N, H) + (1 − q)V p (N, L)]

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Acemoglu and Robinson (2000), (2001)

I What about state S = H?

I If the elite chose τ N = 0 in an MPE, then there is never any
redistribution.
I Values for elite and citizens would be

yr
V r (N) =
1−β

yp
V p (N) =
1−β

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Acemoglu and Robinson (2000), (2001)
Revolution Constraint:
I The revolution constraint will be binding if in state S = H
citizens prefer to revolt than to live under non-democracy
without any redistribution:

V p (R, H) > V p (N)

(1 − µ)y yp
> ⇐⇒ θ > µ
(1 − δ)(1 − β) 1−β
I Inequality must be high enough for the revolution threat to be
credible
I =⇒ For θ ≤ µ, there is never a revolution and there is no
redistribution on the equilibrium path
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Acemoglu and Robinson (2000), (2001)
I When θ > µ revolution constraint binds:
I Citizens would revolt if elite provides no redistribution when
the state is S = H.
I Elite will have to make concessions to avert the revolution:
τ N = τ̂ > 0.
I In this case, the value for citizens is
V r (N, H, τ̂ ) = y r + (τ̂ (y − y r ) − C (τ̂ )y )

+β [qV r (N, H, τ̂ ) + (1 − q)V r (N, L)]

and
V p (N, H, τ̂ ) = y p + (τ̂ (y − y p ) − C (τ̂ )y )

+β [qV p (N, H, τ̂ ) + (1 − q)V p (N, L)]

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Acemoglu and Robinson (2000), (2001)
I The citizens’ best response is

0 if V p (R, H) ≤ V p (N, H, τ̂ )

ρ=
1 if V p (R, H) > V p (N, H, τ̂ )


I Because the elite gets 0 if revolution happens, they will

prevent revolution if they can.
I Question is if concessions will be able to avert revolution.
I To answer this question we need to find out the maximum
value the elite can offer citizens.
I This will be when they set the citizens’ ideal tax rate τ p :
I If V p (N, H, τ p ) ≥ V p (R, H), the revolution can be averted
with a current-period redistribution concession.
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Acemoglu and Robinson (2000), (2001)
I We have that

y p + (1 − β(1 − q)) [τ p (y − y p ) − C (τ p )y ]
V p (N, H, τ p ) =
1−β

I Key in this value is its dependence on q: In the future there is

credible redistribution only in periods of revolutionary threat,
which happens with probability q.
I Revolution is averted if

y p + (1 − β(1 − q)) [τ p (y − y p ) − C (τ p )y ] (1 − µ)y

≥
1−β (1 − δ)(1 − β)

⇐⇒ µ ≥ θ − (1 − β(1 − q)) [τ p (θ − δ) − (1 − δ)C (τ p )]

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Acemoglu and Robinson (2000), (2001)
I If this condition does not hold, then averting revolution with
redistribution is not an equilibrium.
I This inequality also tells us what is the lowest possible µ
under which redistribution can be sustained:

µ∗ = θ − (1 − β(1 − q)) [τ p (θ − δ) − (1 − δ)C (τ p )]

I When µ ≥ µ∗ redistribution averts the revolution.

I When µ < µ∗ not even the highest possible credible
concession averts revolution. Future redistribution happens
too infrequently relative to how much output gets destroyed
under the revolution.
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Acemoglu and Robinson (2000), (2001)

 
I When µ ≥ µ∗ the elite make the smallest possible concession
τ̂ that satisfies the no-revolution condition:

µ = θ − (1 − β(1 − q)) [τ̂ (θ − δ) − (1 − δ)C (τ̂ )]

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Acemoglu and Robinson (2000), (2001)

I All this discussion can be summarized below:

I Proposition. Unique MPE:
I If θ ≤ µ elite never redistributes and citizens never revolt.
I If θ > µ,
I If µ ≥ µ∗ redistribution does avert revolution. In L periods
elite does not redistribute, in H periods elite sets τ N = τ̂ , and
citizens never revolt.
I If µ < µ∗ redistribution promises are insufficient to avert
revolution. In L periods elite does not redistribute, in the first
H period citizens revolt no matter elite’s choice of τ .

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Acemoglu and Robinson (2000), (2001)

I Notice the elite is facing a commitment problem:

I When µ < µ∗ , there is a revolution. The elite would be better
off if they could promise redistribution in the future and keep
that promise.
I But the only credible redistribution is infrequent (in periods
H), which is not enough to avert the revolution.

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Acemoglu and Robinson (2000), (2001)

I The threshold µ∗ is increasing in θ: Inequality makes

revolution harder to avert.
I The threshold µ∗ is decreasing in q: When citizens can solve
their collective action problem more effectively, the
revolutionary threat is more frequent. This makes future
promises of redistribution more frequently credible, making
revolution less likely.

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Acemoglu and Robinson (2000), (2001)

Democratization
I In the model we have been discussing the elite only has one
possible strategy to prevent revolution: redistribution.
I The elite is unable to avert revolution for some range of
parameters. This is because of a commitment problem.
I But in a more general model elites have another possible
strategy: to change political institutions (i.e., democratize).

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Acemoglu and Robinson (2000), (2001)

Democratization
I This works because elite’s commitment problem arises
because citizens have de facto power today but not tomorrow.
I But de jure power, arising from formal institutions, is more
persistent.
I By giving citizens de jure power by changing political
institutions, elites are able to commit to future redistribution
that averts a revolution.
I This argument suggests that democratization (more generally
institutional change), can be seen as a commitment device.

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Acemoglu and Robinson (2000), (2001)

I In 1831 when debating the First Reform Act, British prime

minister Earl Grey said:
I ‘There is no-one more decided against annual parliaments,
universal suffrage and the ballot than am I... The principle of
my reform is to prevent the necessity of revolution... I am
reforming to preserve, not to overthrow’ (in Evans, 1983).

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Acemoglu and Robinson (2000), (2001)
I So let’s augment the model by allowing a larger action space
for the elite:
I At the start of every period elite can democratize.
I For now assume democracy D is an absorbing state.
I The tax rate is decided by majority voting under D. Because
δ < 1/2, median voter is a citizen, who prefers τ p .
I Let’s also allow elite to use repression to avert the revolution.
I Assume for simplicity that repression is always successful in
preventing revolt.
I Repression is costly. It also destroys a fraction of output (e.g.
see current-day Syria).
I When will the elite choose redistribution, repression or
democratization?
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Acemoglu and Robinson (2000), (2001)

I Democratization is costly for the elite. From then on citizens

decide the tax rate and will redistribute.
I Elite would prefer to redistribute without democratizing... but
if this promise is not enough to avert revolution, the only
option left may be democratizing.
I =⇒ Democratization when redistribution promises are not
credible.

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Acemoglu and Robinson (2000), (2001)

I It must also be that giving up power is preferable to

repression.
I If repression is not too costly, elite may prefer to repress
rather than democratize.
I If it is expected that democracy will be too redistributive (e.g.
because inequality is high), elite may prefer to repress rather
than democratize.

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Acemoglu and Robinson (2000), (2001)

I We can express income as

h i
ŷ i = ω(1 − κ)y i + (1 − ω) (1 − τ )y i + (τ − C (τ )y )

I Here κ is the cost due to repression (fraction κ of all income

is destroyed in the period under repression).
I ω ∈ {0, 1} denotes the repression decision (ω = 1 means
repression).
I Cost of repression similar to cost of revolution, but not
permanent.

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Acemoglu and Robinson (2000), (2001)

Timing:
I State S ∈ {L, H} is realized.
I Elite decides to repress or not ω ∈ {0, 1}.
I If ω = 1 citizens cannot revolt, stage game ends.
I If ω = 0 elite decides to democratize or not φ ∈ {0, 1}
I If φ = 0 elite chooses the tax rate τ N .
I Citizens choose to revolt or not ρ ∈ {0, 1}.
I If ρ = 1 game moves to state R forever.

I If φ = 1, game moves to state D forever, and median voter

chooses the tax rate τ D .

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Acemoglu and Robinson (2000), (2001)

Again, we look at MPEs

I Because democracy is an absorbing state,

y p + τ p (y − y p ) − C (τ p )y
V p (D) =
1−β

y r + τ p (y − y r ) − C (τ r )y
V r (D) =
1−β

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Acemoglu and Robinson (2000), (2001)
I Democratizing will prevent revolution if

V p (D) ≥ V p (R, H)

which is equivalent to our original no-revolution constraint:

µ ≥ θ − [τ p (θ − δ) − (1 − δ)C (τ p )]

I Hence, if this constraint is binding, then not even

democratization can avert a revolution.
I As before redistribution without regime change can also
prevent revolution if µ ≥ µ∗ , where µ∗ defined by

V p (N, µ∗ , τ p ) = V p (R, µ∗ )
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Acemoglu and Robinson (2000), (2001)
I What will the elite choose?
I Payoffs from equilibrium with repression for every period when
S = H:
h i
V i (O, H|κ) = (1 − κ)y i + β qV i (O, H|κ) + (1 − q)V i (N, L)

h i
V i (N, L) = y i + β qV i (O, H|κ) + (1 − q)V i (N, L)

I =⇒
y r − (1 − β(1 − q))κy r
V r (O, H|κ) =
1−β
y p − (1 − β(1 − q))κy p
V p (O, H|κ) =
1−β

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Acemoglu and Robinson (2000), (2001)
I When µ < µ∗ redistribution is not enough. The choice will be
between democracy and repression.
I When µ ≥ µ∗ redistribution can avert revolution, so choice is
between redistribution and repression.
I These two comparisons produce two cutoffs for κ.
I κ∗ : Cost of repression for which elite is indifferent between
redistribution at rate τ̂ and repression:

V r (O, H|κ∗ ) = V r (N, H, τ̂ )

1
=⇒ κ∗ = [δC (τ̂ ) − τ̂ (δ − θ)]
θ
I For κ ≥ κ∗ elite prefers to redistribute than to repress.
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Acemoglu and Robinson (2000), (2001)
I κ: Cost of repression for which elite is indifferent between
democratization and repression:

V r (O, H|κ) = V r (D)

1 δC (τ p ) − τ p (δ − θ)
 
=⇒ κ =
θ 1 − β(1 − q)
I For κ ≥ κ elite prefers to democratize than to repress.
I Notice that κ > κ∗ .

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Acemoglu and Robinson (2000), (2001)

I This discussion can be summarized below:

I Proposition. Unique MPE:
I If θ ≤ µ elite never redistributes and citizens never revolt.
I If θ > µ,
I If µ ≥ µ∗ and κ ≥ κ∗ , redistribution does avert revolution and
repression too costly. In L periods elite does not redistribute,
in H periods elite sets τ N = τ̂ , and citizens never revolt.
I If µ ≥ µ∗ and κ < κ∗ repression cheap and revolution too
costly. In L periods elite does not redistribute, in H periods
elite represses.

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Acemoglu and Robinson (2000), (2001)

I If µ < µ∗ and κ ≥ κ, redistribution promises are insufficient to

avert revolution and repression too costly. In L periods elite
does not redistribute, in the first H period elite democratizes.
I If µ < µ∗ and κ < κ, redistribution promises are insufficient to
avert revolution but repression is cheap. In L periods elite
does not redistribute, in H periods elite represses.

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Acemoglu and Robinson (2000), (2001)

I Democratization arises only when revolution is very attractive

for citizens and repression is too costly for the elite.
I Notice both thresholds on κ are increasing in θ:

dκ dκ∗
>0 >0
dθ dθ

I As inequality rises, the region of parameters for which the elite

prefers to repress grows.
I Elites become more willing to use repression in a more
unequal society because more inequality makes the prospects
of democracy much worse for them.

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I This also predicts a non-monotonic effect of inequality on

democracy:
I Very low inequality makes revolution not attractive, so
revolution threat not credible, society remains non-democratic.
I Very high levels of inequality make repression attractive, so
elite represses and remains non-democratic.
I Democracy arises for intermediate levels of inequality, where
revolution threat is active but repression too costly.

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I Also noitce that κ is increasing in q:

dκ
>0
dq

I More likelihood of collective action makes democratization

LESS likely!
I This is because future redistribution becomes more credible,
so citizens are more willing to remain under non-democracy.

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I AR argue this may be a way to interpret the historical

experience of Germany in the second half of the 19th Century:
I Historians have asked why did Germany democratize later
than Britain or France if their labor movement was much
better organized?
I Maybe because the revolutionary threat made promises by
German elites much more credible.
I Indeed, Germany created a welfare state before Britain or
France.

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Discussion:
I Key ideas in this model:
I Distributive conflict.
I De facto and de jure sources of power.
I Revolution threat.
I Commitment problems.
I Institutional change as a credible promise.

I Difficult to find historical instances where democratization has

NOT resulted from conflict, unrest or a revolutionary threat.

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I In this model we assumed Democracy is an absorbing state.

I But why would a transition to democracy be credible?
I First, not conceptually clear what a “formal institution” is.
I Second, can’t the elite try to reverse democracy if they can?
I Asymmetry in the model:
I In Non-democracy elite has de jure power, citizens (may) have
de facto power.
I In Democracy, citizens have de jure power, elite has nothing...
But elites probably have de facto power under democracy.

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