Suppose you are the dictator of an African country and we would like to get you out and establish a well-functioning democracy and economy.  What should we do?

Billionaire Mo Ibrahim has come up with an idea from finance: pay for performance.  He has established a prize of $5 million to go to a democratically elected leader three years after he leaves office.  The prize also gives you an income of $200,000 for the rest of your life.

Seems like a nifty idea in principle but the prize seems too small.  As a non-African example, think of Hamid Karzai in Afghanistan.  His brother is reputed to be heading the heroin trade out of Afghanistan.  If he is sharing the revenue with his Hamid K, the Ibrahim Prize is small potatoes.  Soros etc. have got to pony up too to make the prize bigger (the name of the prize may have to be changed!).

And there is a second problem – we would like well-established non-elected or fishily-elected leaders to step down too.  The Ibrahim Prize could be extended to Ahmadinejads, Musharrafs or Gaddafis too.  This creates an “ex ante moral hazard problem”: you might fight to become a despot and then magnanimously step down having set up clean elections.  This might be fanciful – are strongmen so forward-looking or patient?  Even if they are, presumably this strategy is only feasible in weakly institutionalized countries where despots would arise anyway.  Finally, the precise rules for getting the prize might be kept deliberately vague to discourage such gaming by strongmen.

I think the benefits of broadening the class of potential recipients is worth the risk.

Rochester, NY