Indirect rule is an important informal institution of governance. Recent studies have shown how it can contain nationalism and why governments adopt it to manage some of their sub-state regions. However, this paper develops and tests a theory that highlights the limits of indirect rule, specifying the conditions under which it is likely to fall apart. In the main, we argue that the efficacy of indirect rule depends upon the principal’s monopoly over revenue. Such economic dependence enables peripheral agents to distribute both public and clientelistic goods to their local subjects. In turn, this capacity serves as a principal source of that agent’s legitimacy and underpins the principal’s prerogative to rule indirectly. However, when there are alternative sources of revenue, multiple principals can emerge, which weakens the indirect ruler’s legitimacy and creates an opportunity for nationalist parties to gain political ground. We illustrate and test our theory cross-sectionally using local-government data and extensive interviews from Corsica.
