"Building a New Imperial State: Agency Problems and Separation of Powers in English North America"

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Abstract:

This paper explores the strategic foundations of separation of powers in the English empire of North America. A hierarchical principal-agent model of this setting demonstrates that imperial governors may extract more rents from colonial settlers than the imperial crown prefers. This lowers the crown's own rents, and inhibits economic development by settlers. Separation of powers within colonies allows settlers to restrain the governor at low direct cost to the crown. This restraint shrinks the share of the economy extracted jointly by the governor and the crown, but may thereby induce greater economic development. When eciency gains of extracting from a larger pie outweigh distributive losses from a smaller crown share, the crown supports separation of powers within colonies. The model highlights the role of agency problems as a distinct factor in New World institutional development.