The Loyalty-Competence Trade-Off in Dictatorships and Outside Options for Subordinates

Why do dictators sometimes prefer incompetent subordinates? I explore this question using a formal model. In each period of a dynamic game, a subordinate chooses his level of loyalty, which determines the dictator’s survival probability. He also performs another task—such as carrying out economic policy. The dictator’s decision each period is whether to hire a subordinate who is competent or incompetent at that task. An unemployed subordinate may be hired in the future, when the current dictator is removed from office. I show that less competent subordinates will be more loyal. As a result, dictators who value performance at economic tasks will hire more competent subordinates and will have shorter tenures. Incompetent subordinates will be hired more often if the dictators discount future payoffs less heavily or if the payoff from competence is smaller. The results show that, consistent with observation, longer tenures will not be associated with better economic performance.