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Abstract We utilize the principal-agent framework to demonstrate how optimal incentive contracts can align the interests of the central government of Uzbekistan with the career development of appointed regional leaders, known as hokims. We assume that the central government used cotton yield, which was the country’s signature agricultural product, as the key performance metric in the period from 2010 to 2021. In this context, we develop an empirical model to test whether cotton yield affected the career advancements of appointed regional leaders. The identification strategy relies on exogenous variations in annual precipitation across regions that directly impact crop yield. Our results show that a 1% increase in precipitation results in a 0.23% decrease in crop yield, and then, an increase in cotton yield by half a ton per hectare raises the likelihood of promotion or job retention of hokims by 13–20% points. These results suggest that the central government adjusted crop productivity to annual precipitation to infer the level of effort extracted by the regional governor.
Zafar Nazarov (Thu,) studied this question.