The Market for Protection and the Origin of the State


Kai A. Konrad / Stergios Skaperdas

This paper examines a stark setting in which security or protection can be provided by self-governing groups or by for-profit entrepreneurs (kings, kleptocrats, or mafia dons). Though self-governance is best for the population, it faces problems of long-term viability. Typically, in providing security the equilibrium market structure involves competing lords, a condition that leads to a tragedy of coercion: all the savings from the provision of collective protection are dissipated and welfare can be as low as, or even lower than, in the absence of the state. Thus, the authors explain the tendency towards autocracy both in history, before the appearance of modern representative governance, and in many low-income countries in modern times.

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Veröffentlichung:   Economic Theory, 2012, 50(2), S. 417-443.