A model of political enterprise
Political organizations engaged in long-term operations are viewed as firms that sell promises: their output is the expectation of a reorganization of society. Because benefits will accrue to the organization's customers and rewards will be paid out to its workers only if and when the goal is achieved, the workers are volunteers in the sense that they engage in unpaid effort today in exchange for a probabilistic reward tomorrow. Because a market for promises is the ideal ground for reciprocal cheating, some mechanisms to ensure reciprocal trust must be devised if exchange is to take place at all. Three problems of reciprocal trust are discussed: the firm's credibility vis-a'Ã‚Â -vis its workers, workers' shirking, and the firm's credibility vis-a'Ã‚Â -vis its customers. It is shown that a viable solution to these problems in effect turns the political firm into a kind of producer cooperative. It is then shown that the intrinsic inefficiency of a market made up of producer cooperatives makes merger likely, until a single firm remains. Then it is argued that these trust problems are further lessened if the firm undertakes commercial production on the side, with important consequences for its behavior: this is analyzed with a formal model of a two-product cooperative. These features of the political enterprise and industry are finally shown to account for a variety of observed facts of political life.
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- Carmichael, H Lorne, 1989. "Self-Enforcing Contracts, Shirking, and Life Cycle Incentives," Journal of Economic Perspectives, American Economic Association, vol. 3(4), pages 65-83, Fall.
- Mario Ferrero & Giorgio Brosio, 1997. "Nomenklatura Rule Under Democracy," Journal of Theoretical Politics, , vol. 9(4), pages 445-475, October.
- Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-444, June.
- Menchik, Paul L. & Weisbrod, Burton A., 1987. "Volunteer labor supply," Journal of Public Economics, Elsevier, vol. 32(2), pages 159-183, March.
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