1. Assume Anarchy? Peter J. Boettke Constitutional Economics
Econ 828/Fall 2005
28 November

2. Analytical and Empirical Relevance of Failed and Weak States
The “Giveness” of Institutions of Property and Contract in Neoclassical Economics
Exogenous
Process --- theory of adjustment of variables within fixed parameters
Endogenous
Evolution --- theory of changes in the parameters
The Reality of Ambiguous Property Rights and Non-existent Enforcement
Former Communist States
War Torn Regions
Third World Countries

3. The Contemporary Landscape

4. Governmental Capabilities: Scale, Scope and Strength
Market “failure” and the Public Goods Argument
Market Enabling Institutions
Private property and freedom of contract
Market Preserving Institutions
Federalism, judicial independence, central bank independence
Market Destroying Institutions
Unconstrained Predation by Private and Public Actors

5. A Strong Minimal State?

7. Ambiguity in Rule Regime Changes

8. The Social Dilemma C1, C2 Share Extensive Form C1 > 0 C2 > 0
W2 > C2
Invest
Player 2
L1, W2
Player 1
Hold Up
Don’t Invest
Player 2
0, 0
Hold Up
Share
Invest
C1, C2
L1, W2
Player 1
Normal Form
0, 0
0, 0
Don’t Invest

9. Standard Solution to the Social Dilemma (as represented in this one sided PD game)
Without government to enforce contracts, promise keeping will not be credible and thus the solution will be to not enter the game and thus pass on the gains from trade that might be available in that game.
Through Repeated Interactions and the introduction of penalties for opportunism, we can turn the 1-sided PD game into a 2-sided PD game

10. Is the Law a Factor of Production?
People, Resources and Rules
Incentives and the gains from trade and the gains from technological innovation
Property Rights Systems and Their Enforcement
Time Horizon, Husbanding of Resources, and investment decisions
Worker control systems
Common Property Systems
Slavery
Regulation

11. Without the State How Does Cooperation Emerge and Get Maintained in 2-sided PD Games?

12. But Do We Need a State to Get Governance?
Discipline of Repeated Dealings, including punishment through ostracism from trading network
Information Flows concerning reputation are reliable
These mechanisms degrade as group size increases!!!

13. The Challenge That Must Be Confronted
Self governance in large group settings among socially heterogeneous agents with sufficient discount rates (cannot possibly get cooperation to be sustained if people have high discount rates [ultra high time preference] and thus don’t value the future)
Cooperation in Anonymity
Smith’s division of labor
Hayek’s division of knowledge

14. State-Building and the Nirvana Fallacy
The role of indigenous conflict resolution systems in social cooperation
Local customs on resource access
Trading traditions and evolved norms of behavior
The Costs of Transition to Formal Enforcement Systems
Epistemic Community and Legitimacy
Interest group resistance to change