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Meritocracy in Autocracies: Origins and Consequences


This dissertation explores how to solve incentive problems in autocracies through institutional arrangements centered around political meritocracy. The question is fundamental, as merit-based rewards and promotion of politicians are the cornerstones of key authoritarian regimes such as China. Yet the grave dilemmas in bureaucratic governance are also well recognized. The three essays of the dissertation elaborate on the various solutions to these dilemmas, as well as problems associated with these solutions. Methodologically, the dissertation utilizes a combination of economic modeling, original data collection, and empirical analysis.

The first chapter investigates the puzzle why entrepreneurs invest actively in many autocracies where unconstrained politicians may heavily expropriate the entrepreneurs. With a game-theoretical model, I investigate how to constrain politicians through rotation of local politicians and meritocratic evaluation of politicians based on economic growth. The key finding is that, although rotation or merit-based evaluation alone actually makes the holdup problem even worse, it is exactly their combination that can form a credible constraint on politicians to solve the hold-up problem and thus encourages private investment. An extension of the model also demonstrates that rotation and merit-based evaluation reduces politicians' entrenched interests in existing firms. This allows new firms to enter the market, which sustains Schumpeterian "creative destruction" and long-term growth. In other words, the combination of rotation and merit-based evaluation achieves both commitment and strong flexibility, a property rarely satisfied by other commitment devices. Firm-level panel data from China are further consistent with the main predictions from my model.

The second chapter focuses on another critical dilemma in an autocracy, the loyalty-competence trade-off. An autocrat usually refuses to appoint a competent governor with a broad discretionary power because the governor can use his competence and discretion to challenge the autocrat. Through a game-theoretical model, I show that one-party state can potentially solve the dilemma by appointing both a party secretary and a governor to co-rule a province. The party secretary controls political power, while the governor commands the provision of the public good. The arrangement forestalls local attempts to challenge the autocrat and establishes the autocrat's confidence to promote meritocracy and decentralization. I also characterize the optimal party-government relationship: the secretary should sometimes dominate over the governor in public good provision but not always the case. This is very different from canonical theories on the separation of powers in a democracy. The model is motivated by the experience of China's party state, whose elements of meritocracy and dual leadership are modern incarnations of key institutions in Imperial China. From key historical records, I construct variables measuring political institutions over 1,300 years in Chinese history via textual analysis techniques. The statistical analysis uncovers a long-run correlation between meritocracy and dual leadership, showing the first order relevance of the theory.

In the first chapter, I show how a meritocratic government with strong bureaucratic rules can contribute to a thriving market economy. In the third chapter, I also look at the other direction: when and how private economy contributes to bureaucratic capacity. This helps answer the question why some regimes maintain a persistent meritocracy, while aristocrats capture others. I show that in an environment with weak property rights, a meritocratic government and a thriving private economy reinforce each other. This matches important historical episodes such as the ``Tang-Song Transition'' in Medieval China. In an extension, I also show that legal property rights sufficiently strong can eliminate multiple equilibria, and that stronger property rights cause a more dynastic government. The extended model is employed to illustrate the difference between meritocracies in Imperial China and Ottoman Empire. It also implies a causal relationship between comparative law and state building.

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