Grigoryan: The ruling bargain: sovereign wealth funds in elite-dominated societies

Abstract:

This paper generate new results on the creation and use of sovereign wealth funds (SWF) as tools for maximizing political power of the ruling class. It models a ruler’s decision to set up a SWF in a society dominated by a powerful elite in order to pacify the elite’s political ambitions by transferring resource rents. Furthermore, it shows under which circumstances the ruler is able to gain the elite’s support using a fund and to overcome the danger of coups d’état. SWFs can serve as appropriate instruments for this purpose because they are long-term oriented and strongly institutionalized.

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