Toward a theory of leadership and state building.

We present a theory of the state based on political leadership and reputational equilibria. A political leader first needs a reputation for reliably rewarding loyal supporters. Reputational expectations between political leaders and their supporters become the fundamental political laws on which the enforcement of all other constitutional laws may be based. Successful democratic development requires a plentiful supply of leaders who have good reputations for using public funds responsibly to serve the public at large and not just giving jobs to their active supporters. It is argued that decentralized democracy may be the best way to improve the chances for successful democracy.