• ## Constructive

Posts with this tag will propose some thing that could actually exist in the world (e.g. a new institution, an alternative metric). Of course, the proposals won’t usually be fully formed and ready to implement. But I hope they’re at least suggestive and compelling.

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• ## Mo money, mo problems—autocrat remix

We’ve been wondering why stratified societies grow more slowly than inclusive societies. After challenging offered explanations in previous posts, we offer a new explanation. Perhaps dictators don’t seek economic growth because increased material wealth is basically pointless for the already obscenely wealthy.

##### Contents

El-Materi’s house is spacious, and directly above and along the Hammamet public beach. The compound is large and well guarded by government security. It is close to the center of Hammamet, with a view of the fort and the southern part of the town. The house was recently renovated and includes an infinity pool and a terrace of perhaps 50 meters. While the house is done in a modern style (and largely white), there are ancient artifacts everywhere: Roman columns, frescoes and even a lion’s head from which water pours into the pool. El Materi insisted the pieces are real. He hopes to move into his new (and palatial) house in Sidi Bou Said in eight to ten months.

The dinner included perhaps a dozen dishes, including fish, steak, turkey, octopus, fish couscous and much more. The quantity was sufficient for a very large number of guests. Before dinner a wide array of small dishes were served, along with three different juices (including Kiwi juice, not normally available here). After dinner, he served ice cream and frozen yoghurt he brought in by plane from Saint Tropez, along with blueberries and raspberries and fresh fruit and chocolate cake. (NB. El Materi and Nesrine had just returned from Saint Tropez on their private jet after two weeks vacation. El Materi was concerned about his American pilot finding a community here. The Ambassador said he would be pleased to invite the pilot to appropriate American community events.)

El Materi has a large tiger (“Pasha”) on his compound, living in a cage. He acquired it when it was a few weeks old. The tiger consumes four chickens a day. (Comment: The situation reminded the Ambassador of Uday Hussein’s lion cage in Baghdad.) El Materi had staff everywhere. There were at least a dozen people, including a butler from Bangladesh and a nanny from South Africa. (NB. This is extraordinarily rare in Tunisia, and very expensive.)

[…]

Even more extravagant is their home still under construction in Sidi Bou Said. That residence, from its outward appearance, will be closer to a palace. It dominates the Sidi Bou Said skyline from some vantage points and has been the occasion of many private, critical comments. The opulence with which El Materi and Nesrine live and their behavior make clear why they and other members of Ben Ali’s family are disliked and even hated by some Tunisians. The excesses of the Ben Ali family are growing. (Godec 2009)

The epigraph here describes the son-in-law of Tunisia’s former double threat prime minister and president (read: autocrat). It seems that his connection to the ruler was enough for him to lead an incomparably opulent life. I contend that this fact may actually be key to the riddle we’ve been pondering recently about autocracies.

### Explaining autocratic underachievement

#### Recapitulating

(Acemoglu, Johnson, and Robinson 2005) suggests that stratified societies are at a structural disadvantage when it comes to economic growth. There, they suggest that autocracies underperform inclusive societies because:

1. Autocrats cannot commit to upholding economic rights essential for growth. Realizing this, producers ‘shirk’ and growth slows.
2. Autocrats block Kaldor-Hicks improvements that disadvantage them.

But when we examined these explanations we found them wanting:

1. First, we built a game theoretic model which showed that, under the right conditions, a rational dictator could credibly commit to upholding certain economic rights because it’s in their long-term interest.
1. Second, we pointed out that, even in inclusive societies, there are blocs capable of blocking Kaldor-Hicks improvements.

#### An alternative explanation

We can resuscitate the second explanation by noting how pervasive it is.

If you’re the dictator of basically any country, you’re so materially wealthy that more money for personal consumption is close to pointless. Tunisia (from the epigraph) is not a wealthy country. Its per capita GDP is $3,553 and its total GDP is$40 billion putting it in 96th place out of 191 listed countries (Fund 2017). Yet the president’s son-in-law has a tiger named Pasha. I’m sure you could tell a similar story about North Korea.

Formalizing this somewhat, I’m suggesting that basically every dictator is in the region of their utility function where the marginal utility of more money is very small indeed. If we also suppose that increasing economic growth has some expected cost (most saliently, increased risk of deposition), autocrats’ reluctance to increase growth is quite rational. In symbols and sloppily, $$u(\Delta\ + \) \cdot (1 - (\Delta r + r)) < u(\) \cdot (1 - r)$$ where $$r$$ is the risk of deposition, $$u(\)$$ is the utility from money, and $$\Delta\$$ and $$\Delta r$$ are the increased money and risk associated with some proposed reform.

#### Empirical evidence

This is all lovely theorizing, but is it actually true? We already (briefly) examined the data on the counterclaim that restraint is useful for dictators in the long-term and the data seemed supportive. To test the new explanation offered here (diminishing marginal utility) we might look at GDP and rapacity as measured by risk of expropriation (which seems to be the standard proxy in the literature). If there is a substantial anticorrelation when comparing these variables across countries and times, our new explanation would be less plausible (i.e. Anticorrelation could indicate that autocrats in smaller countries are more rapacious because they can’t be sated by the income available from more moderate rates of expropriation). Unfortunately, the data set that’s standard for these kinds of questions (PRS Group and others 2004) is proprietary.

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• ## Standalone–Value of information calculator

### Calculator

The input required by the calculator is a tree in YAML format. The top level of the tree describes the different pieces of information you might find (e.g. the coin is double heads) after investigating and how likely you think each piece of information is. Each of these info nodes has children corresponding to actions you might take (e.g. bet heads). The final level of the tree (the children of the action nodes) describe the outcomes that actually occur and their probability of occurrence given the information received.

In addition to showing the expected value of information, the calculator shows the corresponding simplified scenario in which you have no way of gaining information about outcomes at the bottom. For example, it shows you the original coin flip scenario before your susurrous friend comes along. This is offered simply as a point of comparison.

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• ## Value of information calculator

### Motivating scenario

Suppose you wanted to do the absolute most good you could. No satisficers here. You wouldn’t just luck into the right activity. It would probably require careful thinking and investigating many big, difficult problems. How do you deal with moral uncertainty? (MacAskill 2014) Which moral theory should you grant the most credence? What are all the possible do-gooding interventions? What are their unintended consequences?

If you insisted upon answering all these questions before acting, you’d almost surely die before you finished. That’s probably not the way to maximize impact. You should probably act in the world at some point—even filled with doubt and uncertainty—rather than philosophize until Death Himself comes for you.1 But when should you stop investigating? One possibility is to just pick a semi-arbitrary date on the calendar—to “timebox”.

Can you do better than this? Can we come up with a more principled way to transition from investigation to action? I contend that the answer is “Yes” and that the tool is value of information calculations.

### Expected value of information calculation

#### Simple scenario

We’ll now look at a much simpler domain for expository purposes. Suppose a friend came to you and offered you a dollar if you called their coin flip correctly. As long as they didn’t charge you, it would make sense to agree as you’d expect to win 50 cents on average. Even better would be if you could swap out their coin with your own trusty two-headed coin. Then, you could be certain that you’d make the right call and you’d get the dollar every time. The extra information you get by knowing the outcome has value.

#### Expected value of perfect information

Slightly less obvious is that you can believe information is valuable to you without being certain exactly what that information is. Suppose you were unable to swap out the flipper’s coin, but a trustworthy friend came to you and whispered, “I know that the flipper uses a two-sided coin. How much will you pay me to tell you whether it’s double heads or double tails?”. After some thinking, I hope you’ll agree that you’d gain by paying up to 50 cents for this information. Without the information you expect to earn 50 cents from the flipper’s bargain. With the information, you expect to earn a dollar. If your friend tells you that it’s a two-headed coin, you can simply bet on heads. If they tell you it’s a two-tailed coin, bet on tails. Either way, you’re guaranteed the dollar. As long as you can react accordingly via your bet, you should be willing to pay for this unknown information. Paying, for example, 20 cents would still leave you ahead because your net gain from the info payment and the bet itself be 80 cents instead of the original expected value of 50 cents.

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• ## Inclusive and extractive societies each have structural advantages

Acemoglu and Robinson claim that extractive societies are at an economic disadvantage because elites will block economic improvements in the name of self-interested stability. But majorities in inclusive societies might also block economic improvements in the name of self-interest. Furthermore, we might expect inclusive societies to be more disadvantaged by problems of collective action.

### Intro

In (Acemoglu, Johnson, and Robinson 2005) and (Acemoglu and Robinson 2013) (and surely elsewhere), Acemoglu and Robinson contend that inclusive societies have inherent economic advantages over stratified (extractive) societies. If true, this is quite important; it suggests that, in the long run, we should expect inclusive societies to “win” out. The moral arc of the universe bends toward justice and all that.

### Oligarchs favor stability over growth

But is it true? As far as I can tell, the best articulation of this claim is in section 6 of (Acemoglu, Johnson, and Robinson 2005). It lays out several claims in support of the argument that oligarchic societies have a structural disadvantage when it comes to economic growth. Last time, we examined their first claim and found it wanting. In this post, we’ll focus on the second:

Another related source of inefficient economic institutions arises from the desire of political elites to protect their political power. [..] [T]he political elite should evaluate every potential economic change not only according to its economic consequences, such as its effects on economic growth and income distribution, but also according to its political consequences. […] Fearing these potential threats to their political power, the elites may oppose changes in economic institutions that would stimulate economic growth.

I have no problems with this claim in itself.

### Invidious majoritarian tyrannies, again

But I think it tells an incomplete story. It’s not the case that social efficiency can only be impeded by minorities in oligarchic societies. Societies with inclusive institutions can also user their decision-making process to block Kaldor-Hicks improvements. If a majority weakly prefers A to B while a minority strongly prefers B to A, majority voting will choose A even though this doesn’t necessarily maximize social welfare. This is precisely the invidious tyranny of the majority we talked about before. An oligarchic society could well avoid this problem.

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