Game Theoretic Choices Between Corrupt Dictatorship Exit Emoluments and Nation-Building CDR Benefits: Is There a Nash Equilibrium?

Abstract

Recent developments in economic theory have established that gross domestic product (GDP) is determined almost entirely by the institutions of capitalism, democracy, and rule of law (CDR). To raise GDP, a corrupt dictator-led country must raise its CDR index. Its corrupt ruler aims to maximize his personal wealth in what he perceives to be a zero sum game. He maximizes personal wealth from a certainty undeserved large share of low GDP versus a deserved small share of high GDP, the former share being larger than the latter in absolute value. We explore the question of how to pay off the corrupt dictator with an emolument, conditional on the dictator reforming or leaving the country, and replaced by a democratically elected government. A game is designed such that when played, it reveals the Nash equilibrium emolument that the reformed or exiting corrupt leader and the entering nation-builders will agree to. JEL Classifications: A20, A22