Wealth Accumulation and Institutional Capture: the Rise of the Medici and the Fall of the Florentine Republic

We study mechanisms and consequences of an institutional capture using novel hand-collected data from the Florentine Republic. In the 14th-15th centuries, political offices were assigned in Florence by a system combining elections and lottery, which ensured for several decades a substantial alternation of power. During the 1420s, after a fiscal crisis, the Medici family became the first lender of the Republic, obtained a leading position in the city, and captured the office allocation mechanism, while leaving the political institutions formally unchanged. Employing individual level information on wealth, political participation, and party affiliation, we first document how the Medici manipulated office assignment and we show that, under their regime, participation into politics became a source of individual wealth accumulation. By using complementary data sources on voluntary loans to the Republic, we then provide several pieces of evidence that explain our findings in terms of rent extraction. Finally, we illustrate that individuals at the top of the wealth distribution gained from the institutional capture at the expenses of other citizens.