A Rational Choice Approach to Illiberal Democracy

A Rational Choice Approach to Illiberal Democracy

Abstract:

Many recent democracies have de-facto weak constraints on the executive, fitting
Zakaria’s (1997) definition of “illiberal democracy”. This paper suggests, however,
that the designers of a democracy may prefer to make future leaders unaccountable
and unconstrained (to an extent) once in office. First, a strong leader can sustain
economic reforms despite opposition after the reforms are implemented or guarantee
reversal if the reforms turn out to hurt key ex-ante constituents. Second, delegation of
power to a single, self-interested party may be preferable to a Hobbesean anarchy
among social groups. Third, interactions with other countries can favor delegation to
an autonomous leader who can “stand up to foreigners”. Lastly, discretionary power
allows leaders to cause more extreme positive and negative systemic outcomes, and if
voters have an option to “exit the system” after a bad outcome they may prefer more
uncertainty. I suggest some anecdotal and, in one case, systematic evidence.

Subfields: democracy, illiberal democracy, delegation, strong leadership, reforms

Democratically elected regimes, often ones that have been reelected or reaffirmed
through referenda, are routinely ignoring constitutional limits on their power and
depriving their citizens of basic rights and freedoms. From Peru to the Palestinian
Authority, from Sierra Leone to Slovakia, from Pakistan to the Philippines, we see the
rise of a disturbing phenomenon in international life – illiberal democracy...Usurption
[of power] is particularly widespread in Latin America and the states of the former
Soviet Union. (Zakaria, 1997)

1. Introduction

It is usually believed that, for democracy to really work, it must be substantive or “deep”.
When unaccompanied by freedom of speech and organization, independent and
competent media, regulatory limits on the tactics allowed in election campaigns,
separation of power, and constraints on the executive once in office, democracy can be
illusory and fragile. For example, presidents will be free to dissolve parliaments, declare
states of emergency, or clamp down on opposition parties, media and critics. In a well
known article, Zakaria (1997) labeled this type of regime an “illiberal democracy”.

The most obvious cause of illiberal democracy may be simply that political elites can get
away with usurping and abusing power. Indeed, many of the new democracies of recent
decades emerged from long histories of partial or full autocracy, and without experience
it may be difficult to design a future democracy to meet the intentions. In addition, due to
low average incomes, high inequality and the political economy of past autocracies,

2

countries may lack the middle class whose education, income, values or outlook, is often
hailed as conducive, or even necessary, to a well-functioning democracy. Electoral
democracy may also be implicitly understood by citizens as simply a different expression
of politics-as-usual – a mere reflection of underlying power relationships. Each elected
politician knows that, were she to displease the real power holders in society, she would
be removed from power one way or the other (Acemoglu and Robinson, 2006). Likewise,
existing political elites may shape the design of a future system to their advantage
(Acemoglu et al., 2007)

I believe that these views of illiberal democracy, where strong leaders appear because of
constraints imposed by experience (or knowledge generally), or by the elites of the old
regime, may often be valid. In this paper, however, I suggest a different set of possible
causes. Specifically, I argue that even well informed and autonomous “founders of
democracy” may deliberately want to build in discretionary power for future leaders. For
this desire, I suggest four possible underlying reasons. First, discretionary power can
allow a strong leader to ignore democratic pressures to reverse ex-ante efficient economic
or other reforms which hurt a majority ex-post. Also, a strong leader can reverse reforms
that turn out to hurt key ex-ante constituents even though a majority supports the reforms
ex-post. In turn, knowing that they are insured against bad outcomes, the key ex-ante
constituents will not want to block reforms ex-ante. Thus, strong leaders can also help to
overcome the political constraints to reform which often appear in new democracies.
Second, in socially divided societies, delegating power to a single, strong but self-
interested, regime may be preferable to a Hobbesean anarchy among social groups which

3

could result from regular democracy. Third, interactions with other countries may favor
delegation to a strong, autonomous leader who can “stand up to foreigners” when foreign
decision makers know that citizens themselves will be more ready to compromise.
Finally, more discretion can allow leaders to cause more highly positive and highly
negative changes in society and if voters have a potentially worthwhile outside option,
such as retreating to the informal or subsistence economies, they may prefer a leadership
whose impact on society is more unpredictable. To support each theory I suggest some
country applications, but my evidence is mainly anecdotal. Also, some countries also fit
several of the four theories. My goal in the paper is less to advance a particular view or
rule out competing alternatives than to suggest which insights a rational choice
perspective may offer.

The rest of the paper is organized as follows. I first review the literature on why voters
may want to support strong leaders who are not democratically accountable or
constrained once in office. Then, in the next section, I develop each of the four
explanations for illiberal democracy proposed above in more detail using some formal
models. I also suggest some applications. The last section offers concluding remarks.

2. Why do people support strong leaders?

Popular support for strong leaders or tolerance for leaders who usurp power once in
office could reflect a human disposition to follow individuals (endowed with good
charisma or lineage, for example) instead of abstract entities of governance governed

4

themselves by abstract rules. Casual observation suggests personal appeal being a factor
in US presidential elections, for example. Alternatively, from a rational choice
perspective, support could be a matter of the right circumstances. For example, fascists
won office in interwar Germany after the devastation brought by World War I, the
hyperinflation and tumult of the 1920s, and the Great Depression, and support for
Milosevic in Serbia in the 1990s followed the demise of the Yugoslav state. State
collapse or weakness also preceded support for extreme left and right wing candidates in
the Former Soviet Union. Ethnic divisions also may generate support for strong leaders as
each faction wants a representative who can bargain aggressively with the leaders of
other groups or find themselves in a security dilemma where being too aggressive is
better than being too complacent.

Among the models in the literature on support for strong leadership, one line of reasoning
suggests that constituents can be swayed by political discourse or behavior when
information is incomplete or be subject to political fait accompli’s (Snyder and Ballentine
2001, Bornstein 2002, de Figueiredo and Weingast 1999, Glaeser 2007). In these views,
elites manipulate their support base into condoning decisions which are not in their
interest. Alternatively, in a model with fully informed and rational voters, but individual
preferences for conformity or reputation, Kuran (1998) shows that a small shock can
cause a small band of radicals to start a cascade towards an “extremist” equilibrium.
Similarly, Dixit (2003) presents a model of “clubs with entrapment” where network
externalities induce standard, well informed agents otherwise averse to joining a club to
join it nonetheless when sufficiently many others do. Since the reason for joining may be

5

negative spillovers to non-members, or foregone positive externalities due to a declining
non-member population, club formation may, similarly to the “club” in Kuran (1998),
represent a less efficient equilibrium. One application of these models may be to explain
how citizens can suboptimally transfer their collective power to an undemocratic
government or a charismatic leader. Finally, Ellman and Wantchekon (2000) show that a
median voter may prefer to support a party with divergent objectives from her own
because extremists in the party may otherwise trigger costly violence, and Dal Bó and Di
Tella (2003) show that strong leaders may be elected because they are more independent
from special interests. My paper differs from these contributions by not assuming
manipulative leaders, voter coordination failure at election time, or threat of intervention
in the political process ex-post by special interest groups. Illiberal democracy, as defined
by elected leaders which are unaccountable and unconstrained once in office, may truly
be a first-best choice for a population majority under the right circumstances.

3. Strong leaders and illiberal democracy: some models

3.1. Strong leaders to implement reforms

This section presents two models where a strong leader, who is not democratically
accountable or constrained once in office, is preferable to voters because otherwise
welfare improving reforms will not be politically feasible. To be concrete, I will focus on
economic reforms, but the points apply to reforms more generally also.

6

3.1.1. Delegation to sustain reforms

Fernandez and Rodrik (1991) predict a status-quo bias in democratic decision-making
under individual-specific uncertainty. In this section, I first replicate Roland’s (2000) presentation
of their basic argument. Second, I slightly extend the model to show that a strong leader,
who will not be democratically accountable once in office, can resolve the status-quo
bias. Thus, assume that with probability p an individual in a large homogenous
population gains a present value of g > 0 from a set of economic reforms and with
probability 1 − p she loses l > 0 . The law of large numbers makes p the proportion of
winners ex-post if the reforms are implemented. Agents are risk neutral, discount by
factorδ ∈ (0,1) , and the status quo payoff is zero. Reforms can be reversed in the next
period at cost ξ < l , so that realized losers would always want to reverse reforms. Finally,
due to commitment problems, transactions costs, or information constraints,
compensation promises are not credible and financial constraints on redistribution imply
that compensation of losers ex-ante is not possible.

Denote the net benefit of reforms byV = pg + (1 − p)(−l) . Then, under simple majority
democracy, V > 0 is an ex-ante political constraint on reform. However, because in
addition reforms can be reversed ex-post, p ≥ 1/ 2 is an ex-post political constraint.
Reforms are only guaranteed if both constraints are satisfied. This generates the status-
quo bias in Fernandez and Rodrik (1991). In particular, even forV > 0 , if p < 1/ 2

7

and (1 − δ )V < ξ then reforms will even be voted down ex-ante: the one period benefit is
insufficient to compensate for the reversal cost.

Consider next the implications of illiberal democracy. Notice first that, from an efficiency
perspective, if the ex-ante constraint is satisfied, but the ex-post constraint is not, making
reform reversal less likely is desirable. Under democracy ex-post, reversal cannot be
prevented nonetheless. However, suppose that the designers of the democratic system at
an earlier time can make it possible for a leader to usurp power and create an illiberal
democracy once in office. Also, at the election stage, voters can choose a ‘committed
reformer’: a leader who favors reforms regardless of majority sentiment or, more
generally, prefers to sustain reforms unless there are ‘very few’ winners: p < p for some
p < 1/ 2 and potentially low. In this case, wheneverV > 0 , voters will support a
committed reformer despite her perfectly anticipated non-democratic behavior ex-post.
Thus, the design of the system – the ability of the committed reformer to usurp power
once in office – leaves the ex-ante political constraint,V > 0 , unchanged, but slacks the
ex-post constraint on reforms from p ≥ 1/ 2 to p ≥ p , ensuring welfare-improving
reforms.1 This interpretation may apply to the reform experiences of some Asian and
Latin American countries, where democratically insulated “technocracies” and powerful
presidents have pushed through reforms despite heavy popular opposition. By contrast,
reform reversals have been common in Africa, where governments have been non-
insulated. In Russia, where severe losses due to have reforms have been experienced,

1 If voters are risk-averse, however, reforms with only a few winners may not be welfare-improving and
therefore not implemented.

8

strong and relatively authoritarian President Putin was elected in 2000 and reelected in
2004. Certainly at the reelection, voters should have been aware of both Putin’s
commitment to reform and his illiberal tendencies.

3.1.2. Delegation to reverse ex-post undesirable reforms

I now suggest that, rather than a tool to ensure sustained reforms, delegation can also be a
tool to guarantee contingent reform reversal. This guarantee can be an insurance policy
for ex-post losers which can induce them to support reforms ex-ante. The model is again
similar to Fernandez and Rodrik. Specifically, suppose that there are two social groups,
labeled 1 and 2, with identical individuals within each group, population shares λ
and1 − λ , and relative political power in the status quo proportional toα and1 − α . We
may haveα = λ , so that democracy obtains. With probability p , all group 1 members
will benefit, and with probability 1 − p they all lose, from a proposed economic reform.
For simplicity, group 2 members gain with certainty. Using the definitions above, the
reform values for groups 1 and 2 are V1 = pg + (1 − p)(−l) andV2 = g . I also assume
that λV1 + (1 − λ)V2 > 0 , so that reforms are efficient. However,V1 < 0 andα > 1/ 2 .
Therefore, the reforms will be opposed ex-ante if they are irreversible. Whether in fact
they are irreversible will depend on the distribution of political power after reform.

9

If we suppose first that the political power distribution is not affected by reforms, then
group 1 can ensure reversal after a single period. It will therefore support reforms as long
as pg + (1 − p)[(1 − δ )(−l) − ξ ] = V1 − (1 − p)(ξ − δl) > 0 . This is possible, for example, if
V1 (<0) and l are relatively large compared toξ . Intuitively, a permanently powerful
social group can give reforms a try and simply reverse them if they do not work out
favorably. Polish elections in 1993 returned the communist party to power, due probably
in large part to high and rising unemployment and lack of social safety nets (Bresser-
Pereira et al. 1993). High unemployment also preceded the return of communists to
power in Hungary in 1994.

However, loss of political power due to reforms for social interests powerful enough in
the status quo to prevent the reforms has often been cited as yet another reform obstacle
(Acemoglu and Robinson 2000). Thus, suppose that α > 1/ 2 falls after reforms
toα '< 1/ 2 . For example, diminished economic importance of group 1 (e.g. state
enterprise workers) may lead to less de-facto political influence. In this case, reversal
becomes impossible and group 1 will oppose reforms ex-ante. However, suppose further
that, prior to reform implementation, reversal power can be delegated to a committed
group 1 benefactor. For this to make a difference, of course, again requires a democratic
system allowing a leader to be unaccountable and unconstrained once in office – an
illiberal democracy. Such a biased and discretionary leader will make the ex-post political
constraint bind whenever group 1 members are hurt by the reforms, which happens with
probability1 − p . In turn, group 1 members will favor reforms, despite their loss of

10

political power, wheneverV1 − (1 − p)(ξ − δl) > 0 . Intuitively, with a committed group 1
benefactor in office, group 1 members need only fear losses for a single period rather
than all future periods. Indeed, not only group 1-, but also group 2 members will favor
the rise to power of the group 1 benefactor because without her in office group 2 will not
get to benefit from the reforms (they will be vetoed by group 1). This theory could
explain the electoral success of populists in Latin America, or conservatives in transition
economies, campaigning to protect the current system and supported by natural
opponents of reforms, who nonetheless appear to be “paper tigers”, and not hesitate to
implement reforms, once in office. Latin American examples since the mid 1980s include
reform pursuing candidates with solid leftist populist credentials such as Presidents
Menem in Argentina, Fujimori in Peru, Estenssoro in Bolivia, and Cardoso in Brazil
(Cukierman and Tommasi 1998). Likewise, reelected socialists in Poland and Hungary in
1993 and 1994 continued the market based reforms of previous regimes. Mexico’s ruling
party, the PRI, used its corporatist links to organized labor and the private sector to
ensure backing for a heterodox stabilization program. This may well have reflected an
implicit insurance agreement. In Chile and to some extent Turkey outgoing military
regimes took steps to ensure protection of their interests in the new democracies. Thus,
the Turkish military handpicked the parties allowed to run in the 1983 elections and
General Pinochet in Chile wrote electoral rules that strengthened the political right and
appointed a number of senators. In Poland the outgoing communists reserved a
significant amount of seats in the future parliament (Haggard and Webb 1994). The fact
that few of these reform episodes have involved reversals, despite the dominance of old
regime interests in the new regime, is consistent with the model above since reversals

11

should only be observed when the insurance policy is used, that is, in a share1 − p of the
cases, where p may be large. Furthermore, in practice, leaderships that emphasize the
welfare of beneficiaries of the old regime can also, instead of reversing reforms, slow the
pace of reforms or provide for social safety nets and redistribution in the new regime.
This is simply another form of insurance.

3.2. Hobbesean delegation

Some developing countries may be prone, under democracy, not to lack of accountability
but to excessive, or the wrong kind of, accountability. Specifically, governments may be
insufficiently insulated from a multitude of social groups based, for example, on class,
region, language, religion or ethnicity. This can lead to weak public and private property
rights and the well known tragedy of the commons (e.g. Tornell and Velasco 1992) as the
power and autonomy of the state declines and it becomes merely a tool for redistribution
through public policy and taxation. If efforts to promote a full democracy will actually
lead to this kind of Hobbesian anarchy, groups that make up society may all be better off
delegating power to a single party who can prevent predation by each of them on the
others: while the enforcer may itself may exploitative, at least there is only one ‘predator’
and this predator, if secure in office, may have a long term view and not set the tax rate
on the wrong side of the Laffer curve. Supporting this intuition, Shleifer and Vishny
(1993) show that decentralized corruption is worse than centralized corruption, Olson
(2000) that producers should prefer a ‘stationary bandit’ to a ‘roving bandit’, and

12

Sanchéz-Pagés (2006) that a once-and-for-all conflict over the private property right to a
resource may be better for all parties from an ex-ante perspective, despite the inefficiency
of conflict, than a permanent common pool situation. While of course no banditry at all
would be ideal, through a strong but benevolent ruler, this is unlikely to be a real option
in many countries. 3 Haggard and Webb (1994 p. xi) thus point to

“…the tendency for democracies to be short-sighted, leading to the deficit problem in the
Latin American context and many others. The political science literature has shown that
governments divided between many parties are more prone to shortsightedness than those
that are not divided”

Thus, to the extent that illiberal democracy can be viewed as delegation to a single,
strong and autonomous but self-interested, ruler, individual citizens or social groups may
surrender power voluntarily out of fear of the Hobbesean anarchy which otherwise
results. To get a formal illustration, I replicate Sanchéz-Pagés (2006) but reinterpret the
resources invested in conflict in that model as resources invested in election campaigning
and I assume that, although the elected leader in an illiberal democracy is unaccountable
and unconstrained once in office, she aims to maximize the welfare of her own social
group. Alternatively, despite weak formal constraints, ethnic or class based groups may

3 As pointed out by Ruger (2003), Zakaria (2003) suggests republicanism and delegation
as solutions to the problems of ‘too much’ democracy, but does not much discuss the risk
that delegates may not be benevolent. As discussed in the cited literature, however, even
an abusive government may be better than no government (Huntington 1968).

13

discipline their own political representatives with informal sanctions (Bates 1981). There
are i = 1,..., n symmetric groups with an initial resource endowment (such as time) ofT

units. The resource can be spent on supplying labor l , election campaigning r or
leisure h , subject to ri + li + hi ≤ T . Total production in society is F (L),.F ' > 0, F ''< 0 ,

∑n

where L = li is labor supplied by all groups jointly. Suppose now that under full

i =1

democracy, as opposed to illiberal democracy, the government is prey to special interests

and its only role is to mediate the resource extraction of each group from the other group

under common pool conditions. In this case, a group’s utility is ui = li F (L) + hi , where
L

we assume that utility is separable in consumption and leisure and the output share a

group appropriates is equal to its input share as is usually assumed in common pool

problems. Also, I have set election campaign inputs r to zero since there is no point in

controlling a powerless government. For F (L) = Lα , α ∈ (0,1) , the unique symmetric

Nash equilibrium in this game implies (Sanchéz-Pagés 2006) L =  n −1 + α 1/(1−α ) ,
n

1−α  n −1+ α α /(1−α )
n2 n 
l= L/n, r = 0 and u = t + . On the other hand, suppose that scope

for illiberal democratic practice once a leader is in office means that the winning group
can usurp power and control over productive assets. The winning group therefore

receives the full return to its labor F (l ID ) , where, again, superscript ID denotes an

‘illiberal democracy’. The likelihood of winning office is (riID )m , where m > 0
n
∑ (riID ) m
i =1

represents returns to scale in election campaign efforts (Skaperdas 1996). Therefore, ex-

14

∑ante, each group’s (expected) payoff function is ui = (riID ) m F (liID ) + (T − liID − riID )

n

(riID ) m

i =1

and in the unique symmetric equilibrium, we have (Sanchéz-Pagés 2006)

l ID =  α 1/(1−α ) , r ID = m n− 1 (αn)α /(1−α ) and u ID = T + 1 − α − m n− 1 (α )α /(1−α ) .
n  n2 n n2 n

Comparing to the common pool case (full democracy), illiberal democracy is better for
each group if (Sanchéz-Pagés 2006 proposition 3) m ≤ m (n,α ) , where m is increasing in

the number of groups n and decreasing in the elasticity of output with respect to labor (a
proxy for labor productivity)α . Intuitively, for low α predation is more attractive

compared to production under common pool conditions and for high n the free-riding
problem is more severe. Low α and high n are indeed plausible for many societies prone
to illiberal democracy, such as the relatively poor and socially divided economies of
Russia (Åberg and Sandberg 2003), Argentina, and large parts of Africa. The opportunity
to win control for the foreseeable future (if not permanently, as the model unrealistically
assumes to simplify the argument) may be preferable, despite the large downside risk of
losing control, compared to the wastefulness of ongoing appropriation associated with the
full democracy. Additionally, Zakaria (2002), whose seminal article in 1997 introduced
the concept of illiberal democracy, cites Pakistan, Indonesia, and Yugoslavia (pp. 44-45):

15

When General Pervez Musharraf took power in Pakistan, there was widespread denunciation of him in just
about every major American publication. They said this was not good, that this was a kind of hijacking of
democracy. What is interesting is that the press in Pakistan, which is reasonably free, reacted very
differently. It was by and large in favor of the coup because they believed the democracy they had was a
sham…Now, two years later, I think it is clear that Musharraff has been extraordinarily brave and
courageous, a reformist in almost every dimension-- economic, political, religious, cultural-and that he was
able to do so because he was not victim to the same short-term interests that modern politicians have to deal
with.

…Take Indonesia; the IMF and the administration of US President Bill Clinton, in my opinion,
delegitmized and destabilized Suharto's regime in the midst of the East Asian crisis. They added their
words to domestic critics, and that ended up being the crucial addition. They dislodged Suharto with the
idea that it was then time for Indonesia to be democratic. They failed to notice that Indonesia had no
functioning political institutions or political parties, that Suharto had run the country like a court, and that
Indonesia was still at a low level of economic development compared with the places where successful
transitions to democracy had taken place. So, what you ended up with was chaos and the fleeing of the
Chinese entrepreneurs, who had all the money. As a result, Indonesia's gross domestic product has
contracted by 50 percent, and the country has been plagued with all sorts of communal violence.

and

…When you introduce democracy at an early stage of development in multi-- ethnic, diverse societies,
there is an enormous incentive for politicians to play the race card, or the religion card, because those are
easily mobilized votes, thereby exacerbating differences that are often quite mild. In some places, this can
lead to the invention of distinctions. This danger was seen most powerfully in the Balkans, where people
like Slobodan Milosevic were very popular in large part due to their ability to appeal to a latent
nationalism.

16

More systematically, Engberg and Ersson (1999) measure illiberal democracy by both of
the following conditions holding (i) an intermediate value of a normalized sum of the
Freedom House political rights and civil liberties scores (ii) a civil liberties score which is
worse (higher on the Freedom House scale) than the political rights score for the country.
In a series of one-way analyses of variance, the authors find higher levels of violence and
protest in illiberal democracies compared to non-democracies, semi-democracies and full
democracies. This is consistent with social divisions and mutual expropriation by social
groups being a problem which illiberal democracy seeks to address. They also find that
countries with illiberal democracy from 1972 to 1997 were at intermediate income levels
in 1960. Since intermediate income societies are often economically and politically
unstable and marked by social dislocation and tensions correlated with modernization, the
alternative to illiberal democracy may well be the relatively less desirable common pool
regime.

3.3. Strong leaders to raise external bargaining power

This section suggests that a system with high discretionary power for leaders can be
preferred by the designers of a future democracy, on behalf of future voters, because a
leader who is not democratically accountable or constrained once in office can negotiate
more favorable agreements with foreign powers. The argument is essentially the same as
the case for a player in an ultimatum game to delegate his decisions to a more aggressive
or proud agent than herself. In the ultimatum game, one player suggests a division of,
say, $100, and the other player accepts or rejects. If the other player rejects, both players

17

receive $0. If both players are rational and self-interested, therefore, the optimal solution
for the first player is to offer a division where she gets almost the entire $100 and the
other player gets, say, $0.01. This is optimal because the best the second player can do in
the second more of the game is to accept the offer made in the first move. However,
notice that if the second player could commit (for example, by letting somebody else play
on her behalf) to being “proud” and rejecting, say, any offer less than $50, she would be
better off: the best the first player can do now is to offer $50. The argument for a strong
leader in an illiberal democracy in this section is analogous.5 Some cases of illiberal
democracy fitting this view may include the strong popular support in recent years in
Latin America for populist-leftist candidates concerned with foreign and foreign
ideological dominance (a long standing and probably real concern in many countries),
such as Chavéz in Venezuela, Morales in Bolivia, and Correa in Ecuador. Correa, for
example, has threatened partial debt default, rejected World Bank and IMF reviews, and
renegotiated revenue sharing agreements with foreign oil companies.6 Responding to a
Colombian military raid across the border in March 2008,

…Correa sent troops to the border, cut diplomatic ties with Bogota and quickly toured Latin America,
winning support from regional powers, such as Brazil and Mexico, against U.S.-backed Colombia.…

5 In a seminal article, Rogoff (1985) shows a gain to delegating monetary policy
decisions to an independent central banker, who is more conservative with respect to
inflation than the government.
6 E.g. “Repsol sues Ecuador government over oil windfall tax”, (International Tax
Review 2008).

18

"Ecuadoreans will unite to support Correa's firm leadership against a foreign threat ... this will put a rubber
stamp on his re-election," said Paulina Recalde, a pollster with Perfiles de Opinion (Opinion Profile) in
Quito…"He has also been successful at showing Ecuador as a little but tough country, and won backing
outside the leftist axis of (his top allies) Venezuela and Bolivia."… More than 80 percent of Ecuadoreans
back Correa's reaction against Colombia, a Cedatos-Gallup poll showed this week. (Reuters, March 6 2008)

Further examples may be the election of Hamas in the Palestinian Authority in 2006 to
the extent that Hamas would be tougher in disputes with Israel than most Palestinian
voters; and what is known in the conflict literature as “ethnic outbidding” (Rabushka and
Shepsle 1972, Brubaker and Laitin 1998, Chandra 2005). Ethnic outbidding involves an
extremist policy stand of one candidate drawing votes away from moderates. For voters
to support such extremists may be quite rational, however, because it shows other groups
that future aggression will be penalized even at the cost of a bloody conflict which, if
voters remained in control (under full democracy) they would prefer to avoid ex-post.

To formalize the argument, suppose that voters in a future democracy know that their
leadership will interact with a third party in the future. For example, a president may have
to negotiate issues related to international security or debt rescheduling. The president
elected today is therefore tomorrow’s negotiating agent and the designers of democracy
should think about this fact. To be concrete, suppose that a foreign government will
prefer to pay 1 currency unit to the country in the future for the right to set up a military
base there, because the cost of having the base to the country is 1. However, citizens
prefer to appropriate the full value to the foreign power of having the base, which is h > 1.
If 1 is offered by the foreign power, but h demanded, then no deal will be made and both

19

the foreign party and the citizens get payoff 0. An offer of either h or 1 and 1 demanded
results in $1 paid and the military base being built. An offer of h when h is demanded
also leads to the base being built.

The game is depicted in Figure 1. Consider first the case of a fully accountable leader in
the country supposed to host the base. This is analytically the same as citizens playing
directly against the foreign player. In this game, there is a unique subgame perfect
equilibrium, where the foreign player (F) offers $1 and the country’s leader (L), on behalf
of voters, accepts.

[INSERT FIGURE 1 HERE]

However, suppose now that the voters live in an illiberal democracy, where leaders are
not accountable or constrained once in office. In addition, suppose that voters can choose
the specific character type of their leader in a prior election and that the leader they
choose places a high value on national sovereignty. This preference, combined with lack
of accountability once in office, makes it common knowledge to all parties that the leader
will reject any offer less than $ h . Formally, I write the leader’s payoff as x − h ,
where x is the payment offered by the foreign power. I also assume that the both parties
choose a deal over no deal whenever indifferent. The new game, now between the foreign
power and the leader of an illiberal democracy, is shown in figure 2. I show the payoffs
to citizens in parentheses. In this game, the only subgame perfect equilibrium is for the

20

foreign government to offer h and for the country’s leader to accept. This leaves citizens
better off, with a payoff of h −1 > 0 , compared to a full democracy, where their payoff
would be 0.

[INSERT FIGURE 2 HERE]

3.4. Strong Leaders and Gambling with an Outside Option

This final section suggests that illiberal democracy can be preferable because
discretionary power raises uncertainty of policy outcomes. While uncertainty is
undesirable for risk-averse voters, since the loss from a low-quality future is bigger than
the gain from a high-quality future, as I show below, when voters have an outside option,
more uncertainty can actually raise expected utility. Thus, the benefits of uncertainty
depend on whether an outside option can become relevant. I first present the model and
then, in two subsections, defend the key assumptions that illiberal democracy leads to
more uncertain outcomes and that voters may have relevant outside options.

3.4.1. Theory

Suppose that the ability of political candidates to govern is private information and
therefore voters face uncertainty about future outcomes. How much uncertainty there is,
however, depends on the type of democracy: if the candidate runs in a democracy that

21

does not allow her much discretion once in office, the voter’s estimate of the future
quality of the “system” (e.g. the formal or urban economy) is normally distributed with
varianceσ 2 . On the other hand, if the candidate runs in a democracy that allows her

strong discretionary power once in office – an illiberal democracy - then the voter’s

estimate of the future quality of the system has variance σ 2 >σ2, where subscript ID
ID

denotes “illiberal democracy”. The distributions are otherwise the same. In particular,

denoting the quality by q , the expected value of q is qˆ under both full and illiberal

democracy. Finally, the voter can exercise her outside option at will, that is, she can exit

the system. For example, she can move into the informal economy or move to a rural area

where the government has little influence. The quality of this outside option is q . A voter

derives utility U (q) from the quality of the system or the quality of her exit option (if she
uses it), where U ' > 0 andU ''< 0 , and she favors the full or illiberal democracies
according to whichever offers her the highest expected utility.

The voter gets the following expected utility under illiberal democracy:

EU ID = EU (q q ≥ q ;σ 2 ) Pr(q ≥ q σ 2 ) + U (q ) Pr(q < q σ 2 )
ID ID ID

= EU (q q ≥ q;σ 2 )(1 − Φ q − qˆ ) + U (q )Φ q − qˆ  (1)
ID σ2 σ2

ID ID

where Φ(x) is the cumulative density function for the standard normal distribution. On

the other hand, the voter’s expected utility from full democracy is
22

EU = EU (q q ≥ q;σ 2 ) Pr(q ≥ q σ 2 ) + U (q ) Pr(q < q σ 2 )

= EU (q q ≥ q;σ 2 )(1 − Φ q − qˆ ) + U (q )Φ q − qˆ  (2)
σ2 σ2

The voter prefers illiberal democracy if expression (1) exceeds expression (2). To see if
this is the case, we can use the continuity of the two expressions in q . First, let q → −∞ .

Then Φ q− qˆ  and Φ q − qˆ  both converge to zero and the comparison between (1)
σ2 σ2

ID

and (2) reduces to EU (q q ≥ q;σ 2 ) < EU (q q ≥ q;σ 2 ) , that is, the full democracy is
ID

always preferable. This is because q → −∞ makes the outside option irrelevant and the

voter is risk-averse. She therefore prefers less uncertainty. However, suppose next that
we gradually increase q starting from − ∞ . As q approaches qˆ , the

difference Φ q − qˆ  − Φ q− qˆ  , that is, the difference between the likelihoods of the
σ2 σ2

ID

illiberal and full democracies, respectively, making the exit option relevant, is first rising
and then declining. This is because the density function for quality in the illiberal
democracy compared to the full democracy is heavy on the tails. The difference is
maximized where the two density functions cross. There, the exit option will rule out a
large mass of low utility outcomes in an illiberal democracy, but does not help much in
the full democracy because the exit option is unlikely to become relevant in the latter.

23

At q = qˆ , the exit option provides insurance against all quality levels below the mean in

both types of democracy. The illiberal democracy is now preferred if (using Φ(0) = 1 )

2

1 EU (q q ≥ qˆ;σ 2 ) > 1 EU (q q ≥ qˆ;σ 2 )
2 ID 2

which is true as long as the voter is not too risk-averse, because the mean value of
q conditional on q being above the mean qˆ is larger for the high variance distribution of
quality associated with the illiberal democracy. A more transparent way to show the
same argument is to assume that the full democracy always delivers certain quality qˆ ,
while the illiberal democracy delivers a stochastic quality with mean qˆ . Then an exit
option worth q = qˆ makes no difference for the benefit of the full democracy, which
always yields utilityU (q ) , but with the illiberal democracy the voter has a positive
probability of utility above U (q ) and zero probability of less utility. Thus, the illiberal
democracy is preferable regardless of the distribution of q and the degree of voters’ risk
aversion. Of course, in practice, which type of democracy will be preferred depends on
parameters, but at least we have shown that the average voter can turn out to prefer the
illiberal democracy. A more conventional view would see causality as running from
illiberal leadership to the rise of outside alternatives as citizens “give up on the system”,
rather than outside options leading to illiberal democracy. In practice, of course, causality
may run both ways in a dynamic process. In this case, as the citizens develop their

24

outside options over time (e.g. build up informal networks), they should become more
willing to support strong leaders and illiberal democracy.

3.4.2. Are outcomes more uncertain in illiberal democracies?

As a rough check on whether illiberal democracy leads to more uncertain outcomes than
full democracy, as assumed in the theory, I use a dataset with annual observations of 172
countries from 1972 to 2004. I first compare the standard deviations of economic growth
for country-year observations with a political rights score of 1 to 3 as opposed to 4 to 7
on the Political Rights scale of Freedom House, where 1 is maximal and 7 minimal
democracy. These standard deviations are 0.0363 and 0.0633, respectively, and the
difference is statistically significant at the 1% level. This is consistent with the theory and
with Rodrik (2000) and Rodrik and Wacziarg (2005). While a more nuanced measure of
illiberal democracy might rely on both the civil liberties and political rights scores of
Freedom House, as used in the Engberg and Ersson (1999) study cited above, these
scores are strongly correlated in the data (Engberg and Ersson, 1999). Also, these authors
find that while illiberal democracy is rather persistent once it appears in a country, a
range of structural characteristics and performance criteria for illiberal democracies do
not differ substantially from those of other polities that are less than fully democratic; the
big differences are between full democracies and other countries.7 To a first

7 Decomposed into subgroups Asian illiberal democracies ‘by design’ as opposed to
Asian illiberal democracies ‘by default’ do stand out on performance dimensions in their
data. However, this is only 4 of 92 countries and, as the authors discuss, it is difficult to

25

approximation, therefore, less political rights would seem a reasonable indicator of a
more illiberal democracy.

Second, I regress the square of the change in real per capita GDP growth between years t
and t-1 for each country on the logarithm of real per capita GDP (a measure of
development) and democracy, both measured in year t-1. I use the square of the annual
growth change rather than the standard deviation of growth for each country as the
dependent variable to increase the number of data points per country and growth rather
than income changes to correct for the trend component of growth; relevant for the model
is outcome uncertainty rather than outcome changes and the trend component of growth
may be predictable for voters. Furthermore, although regressing changes on initial levels
should help to correct for reverse causality, to further address causality and omitted
variable issues I instrument the right hand side variables with their own values lagged for
two years and include country fixed effects to control for unobserved time-invariant
factors, and in columns (3) and (4) I restrict the sample in a way discussed shortly.

As can be seen from the table below, the effects of democracy on economic instability are
statistically significant, although not always large: the standard deviation of the
dependent variable in my sample is 0.016, so using the full sample results in column (1) a
rise in democracy of one standard deviation (a fall of 2.23 in the Freedom House score)

say whether illiberalism in itself was key in these countries rather than, for example, their
development states, regional factors, and the international environment they faced during
the sample years.

26

leads to 0.08 standard deviations decrease in the instability measure. When I interact
democracy and income in column (2), the effect of democracy is somewhat larger over a
range, however: adding up the direct and interaction effects, a one standard deviation
increase in democracy decreases the instability measure by 0.35 standard deviations at
the lowest log income level (3.8) and increases the measure by 0.23 standard deviations
at the highest log income level in my sample (10.7), with a decrease of 0.29 standard
deviations at the mean income level (7.5; this is almost the same as the median).
Democracy increases therefore seem to stabilize growth at low income levels or,
equivalently, autocracy is destabilizing at low income levels. Therefore, to the extent that
countries with illiberal democracies have low incomes, the evidence is consistent with the
theory: voters, when self-insured by available outside options, may prefer illiberal
democracy because it leads to more unpredictable outcomes than full democracy. The
Political Rights measure and real per capita GDP in my sample are rather strongly
correlated (correlation coefficient 0.6051, significant at the 1% level), so illiberal
democracies do tend be poor. Finally, in columns (3) and (4), I try for a more precise
distinction between full and illiberal democracy by excluding countries with a political
rights score above 4, that is, I rule out ‘too illiberal’ polities; these may actually resemble
autocracies and depend on different dynamics. In this subsample, the stabilizing effects of
democracy remain: the column (3) coefficient is more than three times larger than its
column (1) counterpart and column (4) shows that democracy is stabilizing up to log
income 8.6 rather than log income 8 in the full sample.

[INSERT TABLE 1 HERE]

27

3.4.3. Are Outside Options Relevant?

A leader’s ability to influence voters’ future may be constrained by their potential use of
the informal economy, rural or remote areas, self-sufficient kinship networks, or
emigration. Although often, or even by definition, governments in illiberal democracies
infringe on civil liberties and so can potentially curtail citizen exit options, illiberal
governments typically fall short of authoritarian and cannot control citizens absolutely.
Thus, they may censor the press and opposition parties, take powers away from the
legislature, courts, or local governments, and imprison vocal critics, but they cannot
relocate or imprison hundreds of thousands of ordinary citizens the way Stalin could or
maintain a secret police on the scale of Romania or Eastern Germany during the cold war.
Thus, Russia, Argentina, and Serbia may be less than full democracies, but the coercive
power of government is far less than in their authoritarian pasts (for Serbia, when Tito
ruled Yugoslavia). Also, as Zakaria (2003) points out, tax collection rates in developing
countries, where practically all illiberal governments are found, tend to be low,
suggesting another limitation of power. In a similar vein, Cukierman et al. (1992) find
that the size of the agricultural sector is positively, and urbanization negatively, related to
public revenue through money issue (seignorage), again suggesting that ordinary taxes
are harder to collect in less developed economies. Focusing on urban areas, Funkhauser
(1996) estimates an informal sector size of 60 to 75 percent of the labor force in
Guatemala, El Salvador and Honduras during the 1980s, although his definition of
informal workers as those employed in firms of four or fewer employees and all self-

28

employed workers self-identified in the series of household surveys which constitute his
data set may bee too broad for the present purpose: being employed in a small firm does
not obviously make it possible to ‘exit the system’. Nonetheless, small firms may find it
easier to evade regulation and taxation if fixed costs encourage governments to focus on
larger entities, and casual observation would suggest that street peddlers and small
restaurants and workshops, at least, can operate rather freely. Also, 10-15% of the
populations of El Salvador and Nicaragua were able to emigrate during the sample
period, although their home conditions may have been extreme due to the civil conflict,
and several studies show that unemployment is positively related to crime levels (e.g.
Britt 1997 for the US). Schneider and Enste (2003, reproduced in Gërxhani 2004)
estimate informal sector activity at 12% of GDP in OECD countries but 25%, 44%, 39%,
and 25% for the Former Soviet Union, Africa, Latin America and Asia from 1989 to
1993. The literature suggests that taxation, regulation, public policy and transaction costs
determine the individual choice of formal versus informal economic activity (Gërxhani
2004) and such factors are indeed under the control of government. More generally, the
fact that formal and large informal sectors coexist in developing countries suggest that
substantial informal sector opportunities exist if conditions in the formal sector worsen.
Even if individuals themselves cannot escape the state, internationally mobile capital may
be protected abroad and inflation, which redistributes income from the private to the
public sector, can be escaped via currency substitution.

4. Conclusion

29

In this paper, I have proposed some rational choice reasons for the rise of “illiberal
democracy” (Zakaria, 1997) in many developing countries over past few decades. These
democracies are illiberal because they are not underpinned by the preconditions and
safeguards, such as freedom of press, speech, and organization, which in more
substantive democracies prevent executives from monopolizing power at will.
Consequently, leaders can ignore majority sentiments and civil liberties to a large extent.
Nonetheless, the four models described above suggest that, under the right circumstances,
allowing leaders to usurp power once in office may in fact be part of the solution rather
than part of the problems with introducing democracy; illiberal democracy, while short of
ideal, may still be better than the near-complete accountability and strong constraints on
government associated with a full democracy. Of course, a problem which I have not
fully addressed, but which for now I would like to leave for future work, is the risk that,
once an illiberal democrat holds power, it may be difficult to for citizens to prevent
abuse. This should make illiberal democracy less attractive than portrayed here. That
being said, however, as discussed in section 3.4.3, illiberal democracy does not allow for
dictatorship: while illiberal democrats have more leeway than liberal democrats, they are
hardly as omnipotent as the dictators of their countries’ pasts. By the arguments above,
some could potentially have close to optimal, intermediate levels of discretionary power.

30

References

Acemoglu, Daron, Robinson, James A., 2000. Political Losers as a Barrier to Economic
Development. American Economic Review Papers and Proceedings 90, 2000, 126-130.

Acemoglu, Daron and Robinson, James A., 2006. De Facto Political Power and
Institutional Persistence. American Economic Review Papers and Proceedings 96, 2, 325-
330.

Acemoglu, Daron, Ticchi, Davide and Vindigni, Andrea, 2007. Emergence and
Persistence of Inefficient States. Working Paper, Massachusetts Institute of Technology.

Bates, Robert H. 1981. States and Markets in Tropical Africa. Markets and States in
Tropical Africa: The Political Basis of Agricultural Policies (California Series on Social
Choice and Political Economy, University of California Press

Bornstein, Gary, 2002. Intergroup Conflict: Individual, Group, and Collective Interests.
Center for Rationality and Interactive Decision Theory Discussion Paper 297, Hebrew
University.

Bresser-Pereira, Luiz Carlos, Maravall, José Maria, Przeworski, Adam, 1993. Economic
Reforms in New Democracies: A Social-Democratic Approach. Cambridge University
Press, Cambridge.

31

Britt, Chester L. 1997 Reconsidering the unemployment and crime relationship: Variation
by age group and historical period Journal of Quantitative Criminology 13, 4, pp. 405-428

Brubaker, Robert and David D. Laitin, 1998. Ethnic and Nationalist Violence. Annual
Review of Sociology 24, 423-52.

Chandra, Kanchan, 2005. Ethnic Parties and Democratic Stability. Perspectives on
Politics 3, 235-52.

Cukierman, Alex, Tommasi, Mariano, 1998. Credibility of Policymakers and of\
Economic Reforms. In: Sturzenegger, Federico, Tommasi, Mariano, The Political
Economy of Reform. MIT Press, Cambridge.

Cukierman, Alex, Sebastian Edwards, Guido Tabellini 1992 Seigniorage and Political
Instability American Economic Review 82, 3, 537-55

Dal Bó, Ernesto and Rafael di Tella, 2003. Capture by Threat. Journal of Political
Economy 111, 5, 1123-54.

de Figueiredo, Rui and Barry R. Weingast, 1999. The Rationality of Fear: Political
Opportunism and Ethnic Conflict. In: Walter, Barbara F., Snyder J. (Eds.), Civil Wars,
Insecurity, and Intervention. Columbia University Press, New York, 261-302.

32

Dixit, Avinash, 2003. Clubs with Entrapment. American Economic Review 93, 5, 1,
1824-1829.

Ellman, Matthew and Leonard Wantchekon, 2000. Electoral Competition under the
Threat of Political Unrest. Quarterly Journal of Economics 115, 2, 499-531.

Engberg, Jan and Ersson, Svante (1999) Illiberal Democracy in the Third World – An
Empirical Inquiry. Paper to be presented for the workshop Democracy in the Third
World: What should be done? ECPR Joint Sessions of workshops, Mannheim, Germany,
26-31 March 1999

Fernandez, Raquel and Dani Rodrik, 1991. Resistance to Reform: Status Quo Bias in the
Presence of Individual-Specific Uncertainty. American Economic Review 81, 5, 1146-55.

Funkhauser, Edward 1996 The Urban Informal Sector in Central America: Household
Survey Evidence World Development 24, 11, 1737-1751

Gërxhani, Klarita The Informal Sector in Developed and Less Developed Countries: a
Literature Survey Public Choice 120, 267-300

Glaeser, Edward, 2007. The Political Economy of Warfare. Working Paper, Harvard
University.

33

Haggard, Stephan and Webb, Steven B. Introduction. In Haggard, Stephan and Steven B.
Webb (Eds.), 1994. Voting for Reform: Democracy, Political Liberalization, and
Economic Adjustment. World Bank, Washington DC.

Huntington, Samuel P. 1968 Political Order in Changing Societies, Yale University Press

International Tax Review, June 17, 2008 Repsol Sues Ecuador over Oil Windfall Tax,
available at
http://www.internationaltaxreview.com/?Page=9&PUBID=210&ISS=24799&SID=7079
50

Kuran, Timur, 1998. Ethnic dissimilation and its international diffusion. In: Lake, David
A., Rothchild, Donald (Eds.), Ethnic Conflict: Fear, Diffusion, and Escalation. Princeton
University Press, Princeton, 35-60.

Olson, Mancur 2000 Power and Prosperity: Outgrowing Communist and Capitalist
Dictatorships, Basic Books, 2000

Rabushka, Alvin, Shepsle, Kenneth R., 1972. Politics in Plural Societies. Charles E.
Merrill Publishing, Columbus

34

Re, Richard, Rahman, Sabeel (2002) Illiberal Demcoracy Five Years Later. Harvard
International Review, Summer 2002

Reuters March 6 2008 ANALYSIS – Ecuador’s Correa Boosts Standing in Colombia
Crisis, available online at http://www.reuters.com/article/latestCrisis/idUSN05603456
Rodrik, Dani 2000. Participatory Politics, Social Cooperation and Economic Stability.
American Economic Review 90, 2, 140-44
Rodrik, Dani and Romain Wacziarg 2005. Do Democratic Transitions Produce Bad
Economic Outcomes? American Economic Review 95, 2, 50-55

Rogoff, Kenneth, 1985. The Optimal Degree of Commitment to an Intermediate
Monetary Target. Quarterly Journal of Economics 100, 4, 1169-1189.

Roland, Gerard, 2000. Transition and Economics: Politics, Markets, and Firms. MIT
Press, Cambridge.
Ruger, William Review: The Future of Freedom: Illiberal Democracy at Home and
Abroad, First Things 137 November 63-66

Sanchéz-Pagés, Santiago (2006) On the Social Efficiency of Conflict. Economics Letters
90, 1, pp. 96-101.

35

Schneider, F and Enste, D. H. (2003) The Shadow Economy: An International Survey.
Cambridge: Cambridge University Press

Shleifer, Andrei and Vishny, Robert W. Corruption 1993 Quarterly Journal of Economics
108, 599-617

Snyder, Jack and Karen Ballentine, 1996. Nationalism and the Marketplace of Ideas.
International Security 21, 2, 5-40

Tornell, Aaron and Andrés Velasco 1992 "The Tragedy of the Commons and Economic
Growth: Why Does Capital Flow From Poor to Rich Countries?," Journal of Political
Economy, December 1992

Zakaria, Fareed, 1997. The Rise of Illiberal Democracy. Foreign Affairs 76, 6,
November/December
Zakaria, Fareed 2003 The Future of Freedom: Illiberal Democracy at Home and Abroad.
W. W. Norton&Co New York London
Åberg, Martin and Mikael Sandberg 2003. social Capital and Democratization: Roots of
Trust in Post-Communist Poland and Ukraine. Ashgate Publishing: Hampshire, England

36