This article explores conditions under which dictators comply with a social contract. We assume society to consist of two groups: one with a comparative advantage in using violence, the other with a comparative advantage in producing private goods. Violence can be used to produce security or to exploit the weaker group. The opportunity for exploitation is limited: it reduces the incentives of the exploited to produce private goods and increases the chances of revolution. Social contracts consist of the exchange of security against a share of the private good, produced at a high effort ...

<[Y.sub.h]. If W chooses high effort when producing the private good, in other words, e = h, then he has to bear incremental costs that are denoted as E>