Economic elites and the constitutional design of sharing political power

Abstract

What explains the emergence and persistence of institutions aimed at preventing any ruling group from using the state apparatus to advance particularistic interests? To answer this recurring question, a burgeoning literature examines the establishment of power-sharing institutions in societies divided by ethnic or religious cleavages. Going beyond existing scholarly work focused on these specific settings, we argue that political power-sharing institutions can also be the result of common disputes within the economic elite. We propose that these institutions are likely to emerge and persist when competition between elite factions with dissimilar economic interests is balanced. To address the possibility of endogeneity between elite configurations and public institutions, we leverage natural resource diversity as an instrument for elite configurations. We show that, where geological resources are more diverse, competition between similarly powerful economic groups is more likely to emerge, leading ultimately to the establishment of power-sharing mechanisms that allow elite groups to protect their diverging economic interests.