Abstract:

We develop a framework to examine the organizational challenges faced by central rulers whose
large territories require delegating administrative power to distant rural or urban elites. These elites
have distinct policy preferences and vary in their economic importance. The ruler’s organizational
choices balance a trade-off: allowing elites to adapt to local and common shocks while maintaining
coordination across the realm. We show that as urban economic potential grows, the ruler trans-
fers administrative control over towns from landed to urban elites, particularly when all players’
preferences are aligned. When towns are administratively autonomous, the ruler summons them to
central assemblies to ensure effective communication and coordination. This mechanism can ex-
plain how, during the Commercial Revolution, European merchant elites gained nationwide politi-
cal clout in parliament by first obtaining control over urban administrations. We provide empirical
evidence for our core mechanisms and discuss how the model applies to other historical dynamics
(ancient Rome and Spanish America), as well as to contemporary organizational problems.