Working Paper: CEPR ID: DP2173
Authors: Kai A. Konrad; Stergios Skaperdas
Abstract: We examine a stark setting in which security or protection can be provided by self-governing groups of by for-profit entrepreneurs: kings, lords, or mafia dons. Though self-governance is best for the population, it faces problems of long-term viability. Typically, in providing security the stable 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 or lower than in the absence of a state.
Keywords: protection; security; governance; origin of state
JEL Codes: D30; D70; H10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| self-governance (H10) | welfare (I38) |
| self-governance (H10) | underprovision of protection (D18) |
| for-profit protection agency (L84) | overall output (E23) |
| for-profit protection agency (L84) | welfare (I38) |
| competing lords (D74) | welfare (I38) |
| lords' power to extract revenue (H13) | welfare (I38) |