Economic Origins of Digital Dictatorship and Democracy

Abstract: Once seen as a weapon of freedom, informational technology has drastically transformed state capacity—often with unintended consequences. Our study analyzes the rise of the digital state. We do so by proposing a theory of how recent trends in monopoly power fuelled the demand for information technology, and how these technologies, in turn, spilled over to the state. In our model, we show information technologies that allow monopolists to extract surplus from consumers also enable states to more efficiently exercise a monopoly of violence. Since this technology transforms the costs and consequences of repression, we study how the digitization of the state impacts preferences for (digital) democracy and (digital) autocracy. A key insight is that information may reduce the costs of autocracies to deploy repression, which in turn makes autocracy more palatable to elites and citizens. We provide empirical insights into main components of our model, using newly collected data on state technological adoption.