The rise and demise of theocracy: theory and some evidence

This paper models theocracy as a regime where the clergy in power retains knowledge of the cost of political production but which is potentially incompetent, quarrelsome, or corrupt. This is contrasted with a secular regime where government is contracted out to a secular ruler, and hence the church loses the possibility of observing costs and creates for itself a hidden-information agency problem. The church is free to choose between regimes—a make-or-buy choice—and we look for the range of environmental parameters that are most conducive to the superiority of theocracy and therefore to its occurrence and persistence, despite its disabilities. Numerical solution of the model indicates that the optimal environment for a theocracy is one in which the “bad” (high-cost) state is disastrously bad but the probability of its occurrence is not very high. Quantitative evidence on the rise of ancient Israelite theocracy and the current surge of Islamic theocratic fundamentalism provides surprisingly strong support for this prediction. Lastly, supportive evidence is suggested by two rare instances of a theocracy’s peaceful demise.