The question of who guards the guards is intimately connected with broader questions of state capacity and the establishment of a monopoly of violence in society, something which is often viewed as the defining feature of the modern state. But to establish such a monopoly, civilian rulers need not only to build an effective military, but also to control it. In this paper we study how governments may solve this problem when they recognize that their decisions to build a strong army may have ramifications for subsequent coups.

In this paper we take for granted that the poverty of Sub-Saharan Africa is to a large part explained by its political and economic institutions. As citizens Africans do not have the incentives to save and invest, as politicians they do not have the incentive to provide public goods. We focus on the issue of how Africa developed such institutions. Historically, no society had the types of institutions required for modern economic growth, though a few had elements of them for quite long periods. Growth arose when institutional transitions took place. We argue that the historical dynamics of institutions in Africa have been different. Processes of state formation seem to have been delayed relative to Eurasia, and state institutions appear to have been intensely absolutist and patrimonial. These initial institutions interacted in a perverse way with a series of shocks that hit Africa, in particular the slave trade in the early modern period, and colonialism in the 19th and 20th centuries. Africa countries emerged at independence with a complex path dependent set of institutions that were probably even worse than those which they had at the time of colonization. It was these that precipitated authoritarianism, sustained economic decline and reinforced the poverty we see in Africa today.

Countries that have pursued distortionary macroeconomic policies, including high inflation, large budget deficits and misaligned exchange rates, appear to have suffered more macroeconomic volatility and also grown more slowly during the postwar period. Does this reflect the causal effect of these macroeconomic policies on economic outcomes? One reason to suspect that the answer may be no is that countries pursuing poor macroeconomic policies also have weak "institutions," including political institutions that do not constrain politicians and political elites, ineffective enforcement of property rights for investors, widespread corruption, and a high degree of political instability. This paper documents that countries that inherited more "extractive" institutions from their colonial past were more likely to experience high volatility and economic crises during the postwar period. More specifically, societies where European colonists faced high mortality rates more than 100 years ago are much more volatile and prone to crises. Based on our previous work, we interpret this relationship as due to the causal effect of institutions on economic outcomes: Europeans did not settle and were more likely to set up extractive institutions in areas where they faced high mortality. Once we control for the effect of institutions, macroeconomic policies appear to have only a minor impact on volatility and crises. This suggests that distortionary macroeconomic policies are more likely to be symptoms of underlying institutional problems rather than the main causes of economic volatility, and also that the effects of institutional differences on volatility do not appear to be primarily mediated by any of the standard macroeconomic variables. Instead, it appears that weak institutions cause volatility through a number of microeconomic, as well as macroeconomic, channels.

Many developing countries have suffered under the personal rule of kleptocrats, who implement highly inefficient economic policies, expropriate the wealth of their citizens, and use the proceeds for their own glorification or consumption. We argue that the success of kleptocrats rests, in part, on their ability to use a divide-and-rule strategy, made possible by the weakness of institutions in these societies. Members of society need to cooperate in order to depose a kleptocrat, yet such cooperation may be defused by imposing punitive rates of taxation on any citizen who proposes such a move, and redistributing the benefits to those who need to agree to it. Thus the collective action problem can be intensified by threats which remain off the equilibrium path. In equilibrium, all are exploited and no one challenges the kleptocrat. Kleptocratic policies are more likely when foreign aid and rents from natural resources provide rulers with substantial resources to buy off opponents; when opposition groups are short sighted; when the average productivity in the economy is low; and when there is greater inequality between producer groups (because more productive groups are more difficult to buy off).