The logic of hereditary rule: theory and evidence

Abstract

Hereditary leadership has been an important feature of the political landscape throughout history. This paper argues that hereditary leadership is like a relational contract which improves policy incentives. We assemble a unique dataset on leaders between 1874 and 2004 in which we classify them as hereditary leaders based on their family history. The core empirical finding is that economic growth is higher in polities with hereditary leaders but only if executive constraints are weak. Moreover, this holds across of a range of specifications. The finding is also mirrored in policy outcomes which affect growth. In addition, we find that hereditary leadership is more likely to come to an end when the growth performance under the incumbent leader is poor.

Appendix

Proof of Proposition 1

Consider the first case and suppose that ${\hat{e}}\left( s\right) \ne s$, and all unpopular leaders are removed from office after one period. The value to the selectorate along the equilibrium path is $\frac{\rho A+\left( 1-\rho \right) {\bar{A}}\left( \rho \right) +\Delta }{1-\beta }$. Let

$$\begin{aligned} W\left( x\right) =x+\beta \left[ \frac{\rho A+\left( 1-\rho \right) {\bar{A}} \left( \rho \right) +\Delta }{1-\beta }\right] . \end{aligned}$$

Retaining popular incumbent yields $W\left( A\right) .$ Deviating by removing such an incumbent makes the selectorate worse off since $W\left( A\right) >W\left( {\bar{A}}\left( \rho \right) \right)$. Now consider whether there could be a worthwhile deviation by retaining an unpopular incumbent rather than picking a new incumbent at random. This will not be the case either since $W\left( -A\right) <W\left( {\bar{A}}\left( \rho \right) \right)$. Hence there is no worthwhile one-shot deviation for the selectorate. Since the probability that an incumbent is retained is independent of $\delta$, it is optimal for all incumbents to set $e\ne s$ for all $c>0$. $\square$

Proof of Proposition 2

We first show that it is optimal for the selectorate in such cases to retain the offspring of leaders in this case if they produce $\Delta$ when the out-of-equilibrium beliefs are that if the leader choose $e\ne s$, then there is an infinite reversion to playing the benchmark equilibrium where $e\ne s$ for all leaders and only popular leaders are retained. In the benchmark equilibrium, the payoff along the equilibrium is

$$\begin{aligned} \frac{\rho A+\left( 1-\rho \right) {\bar{A}}\left( \rho \right) }{1-\beta }. \end{aligned}$$

In the proposed hereditary equilibrium, the payoff is:

$$\begin{aligned} \frac{{\bar{A}}\left( \rho \right) +\Delta }{1-\beta }. \end{aligned}$$

Suppose now that the incumbent leader has an unpopular offspring then retaining that individual is optimal if

$$\begin{aligned} -A+\Delta +\beta \left[ \frac{{\bar{A}}\left( \rho \right) +\Delta }{1-\beta } \right] \ge {\bar{A}}\left( \rho \right) +\beta \left[ \frac{\rho A+\left( 1-\rho \right) {\bar{A}}\left( \rho \right) }{1-\beta }\right] \end{aligned}$$

which reduces to the condition above. Clearly, if this condition holds, it will hold a fortiori if the incumbent’s offspring is popular. This equilibrium exists as long as $\left( 1-\rho \right) B\ge c$ . This is because if the incumbent deviates to $e\ne s$, then his incumbent will be retained in office with probability $\rho$. However, if he chooses $e=s$, then his offspring will hold office for sure. $\square$