The market for protection and the origin of the state

Abstract

We examine 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). Although 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, we explain the tendency towards autocracy both in history, before the appearance of modern representative governance, and in many low-income countries in modern times.

Poor Institutions, Rich Mines: Resource Curse and the Origins of the Sicilian Mafia

“…In fact, as some observers have pointed out, whether natural resources may result in a "curse" or a "blessing" may crucially depend on a country's institutional quality (Mehlum et al, 2006a,b). 6 In the presence of weak institutions, our argument goes, natural resources are particularly vulnerable to predatory attacks; in this context, the (illegal) use of violence provides mafia-type criminal organizations with a competitive advantage in the supply of protection and extortion (Gambetta, 1993;Konrad and Skaperdas, 2012), resulting in the capacity to extract a substantial portion of natural-resource-based rents.…”

“…The quality of pre-existing political and legal institutions is arguably important: when institutions are dysfunctional, conflict over access to resource rents is likely to escalate, giving rise to increased corruption, rent-seeking, and even violence (Skaperdas, 2002;Collier and Hoeffler, 2002). Similarly, the literature on organized crime (Gambetta, 1993;Konrad and Skaperdas, 2012) has argued that the combination of weak institutions and resource abundance can be conducive to the emergence of mafia-type organizations which can have profound and long-lasting effect on a country's economic prospects.…”

Economic Perspectives on Peaceand Conflict

“…As suggested earlier, the state's ability to define and enforce property rights helps to establish and maintain order that is conducive for a well-functioning economy. Yet, the provision of security generally involves the exercise of power-the use of force or at least the threat thereof; and, the state's exercise of power need not be beneficial for the citizens, particularly where the state has predatory tendencies (see, for example, Robinson, 2001;Moselle and Polak, 2001;Konrad and Skaperdas, 2010). What prevents the state, which holds this power, from expropriating the wealth of the state's citizens?…”

The State's Enforcement Monopoly and the Private Protection of Property

“…2 From the point of view of efficient property-rights protection, at least two arguments can potentially justify the centralization of enforcement activities (Barzel 2002). First, there may be economies of scale to or public-goods aspects of public enforcement (Tullock 1967, Konrad andSkaperdas 2010), such that, e.g., a police officer who is responsible for an entire neighborhood is preferable to security guards for every individual. Second, private enforcement may have negative externalities, such that, e.g., a private security guard may increase the likelihood of theft on the part of the neighbor (Clotfelter 1978, Polinsky 1980).…”