UC Berkeley

We explore the association between leadership and economic success in three different settings. First, we offer a new approach to study how groups lacking formal leaders coordinate actions (e.g. innovation, corporate transformation, civil uprising, etc.). Using controlled laboratory experiments, we find that leadership is a critical catalyst for cooperation. By varying the payoffs for not cooperating when others do so, we identify an interaction effect between the characteristics of leaders and the underlying context in which leadership emerges. In particular, when these payoffs are low, leadership is ubiquitous: no special features distinguish leaders. When change requires overcoming high monetary incentives favoring the status quo, leaders tend to be exceptional. These types of leaders exhibit a distinct non monetary taste for mutual cooperation. This result implies that recruiting communally oriented individuals may facilitate innovation or change within firms. Next, we study the extent to which non-pecuniary motives explain collusive behavior and consequently low productivity in firms. We find that classical collusion, obtained by explicit or implicit agreements between individuals, is fueled by other-regarding concerns. Each member showing other regarding concerns decreases group effort by 15% of the average effort in a group of three individuals. Moreover, the emergence of a selfish leader from an originally leaderless group exacerbates this collusive behavior. Thus, the propensity of collusion is highest in a group of one selfish individual and two other regarding ones. Contrary to our first essay, leadership in this case is detrimental for productivity because

of conflicting interests between the workers and the firm. Finally, we study how incumbents consolidate power over time. Using a formal theory model, we identify a mechanism by which leaders break away from the following trap: the more growth is fostered, the stronger the incentives for challengers to contest control. The mechanism hinges on two forms of investments by the incumbent: coercive capacity and productive capacity. In an application to state consolidation, we derive lessons for state-building by showing how investments in coercive capacity might have to precede investments in productive capabilities to ensure prosperity and peace. We also show how economic shocks and arms innovations may trigger state consolidation and economic take-off or keep polities in a trap of conflict and economic stagnation.