Abstract
According to the economic theory of rights, individuals have rights to the extent that they are able to bargain for them. In the real world, significant rights might sometimes be bargained for on an individual basis. When does the teenager have the right to take the family car? Rights of family members within the family setting are clearly subject to negotiation, but the same is true outside of the family setting. What often is referred to as corruption is the outcome of an exchange process that accords some individuals more rights than others.1 Even in societies that espouse equal rights as a public policy, factors such as corruption and special interest legislation create a setting where some people have more rights, or more securely enforced rights, than others.2 Differential rights can be created by individual bargaining, but can also be the result of group action, where one group is able to impose a rights structure that gives them advantages over others.
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Notes
The title of Bruce L. Benson, “A Note on Corruption by Public Officials: The Black Market for Property Rights,” Journal of Libertarian Studies 5, No. 3 (Summer 1981), pp. 305–311, explains these differential rights in just the terms used here. There is a market for rights. See also “Corruption in Law Enforcement: One Consequence of ‘The Tragedy of the Commons’ Arising with Public Allocation Processes,” International Review of Law and Economics 8 (1988), pp. 73–84, and “An Institutional Explanation for Corruption of Criminal Justice Officials,” Cato Journal 8, No. 1 (Spring/Summer 1988), pp. 139–163, by the same author,
and Benson and John Baden, “The Political Economy of Governmental Corruption: The Logic of Underground Government,” Journal of Legal Studies 14 (June 1985), pp. 391–410.
Oliver E. Williamson, The Economic Institutions of Capitalism. New York: The Free Press, 1985, discusses opportunism at some length and methods by which contracts can be made to deal with the problem. He devotes two chapters to the idea of credible commitments, of which the political institutions discussed later in the chapter can be viewed as examples.
Thomas Schwartz, “The Universal-Instability Theorem,” Public Choice 37, No. 3 (1981), pp. 487–501, develops a model that illustrates the similarity of market exchange and political exchange in this regard.
See Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984), for a discussion of iterated prisoners’ dilemma games.
This type of model of social institutions is described by Earl A. Thompson and Roger L. Faith, “A Pure Theory of Strategic Behavior and Social Institutions,” American Economic Review 71, No. 3 (June 1981), pp. 366–380.
Gordon Tullock, “The Welfare Costs of Tariffs, Monopolies, and Theft,” Western Economic Journal 5 (June 1967), pp. 224–232, discusses these. It is interesting to note the parallel Tullock draws between tariffs and theft. The efficiency losses that exist because people try to protect themselves from theft also exist because people try to avoid taxation, but the fact that there is a welfare cost in each case does not alter the fact that neither tax burdens nor rights are absolute. Economists use lump-sum taxation as a model of ideal efficient taxation, and perhaps just as an ideal efficient tax does not exist, an ideal efficient rights structure does not exist either.
The prominent article by Isaac Ehrlich, “The Deterrent Effect of Capital Punishment: A Question of Life and Death,” American Economic Review 65, No. 3 (June 1975), pp. 397–417, suggests that the deterrent effect of capital punishment saves more victims’ lives than the number of murderers executed.
Robert Nozick, Anarchy, State, and Utopia (New York: Basic Books, 1974).
In this small number setting, the allocation of the right is likely to be optimal if transaction costs are low, following Ronald H. Coase, “The Problem of Social Cost,” Journal of Law & Economics 3 (October 1960), pp. 1–44.
This incentive to share in the gains from trade could far overshadow the power to protect rights. Robert Axelrod, The Evolution of Cooperation (New York: Basic Books, 1984), has argued how the incentive for cooperation over the long run can be more important than the transitory gains that could be reaped through noncooperative behavior.
This construction was used in Randall G. Holcombe, “A Contractarian Model of the Decline in Classical Liberalism,” Public Choice 35, No. 3 (1980), pp. 260–274,
to depict the social contract theory in James M. Buchanan, The Limits of Liberty: Between Anarchy and Leviathan (Chicago: University of Chicago Press, 1975). The present application does not require the same concept of agreement as is found in the social contract theory.
Hans-Jorg Schmidt-Trenz, “The State of Nature in the Shadow of Contract Formation: Adding a Missing Link to J. M. Buchanan’s Social Contract Theory,” Public Choice 62, No. 3 (September 1989), pp. 237–251, argues that the point of anarchistic equilibrium, point A in Figure 4.3, is a function of the type of bargaining that will take place to produce the social contract. The model developed here does not rely on point A being in a specific location, so is not affected by Schmidt-Trenz’s observation. His more general point about the outcome of the bargain being a function of the type of bargaining that takes place is relevant to this model, however.
This static model depicts a rights structure at a point in time, which might change over time. Dan Usher, “The Dynastic Cycles and the Stationary State,” American Economic Review 79, No. 5 (December 1989), pp. 1031–1044, develops a dynamic model that depicts a constant evolution rather than a steady state. The comparative statics framework might capture an instant in this dynamic model, but does not have dynamic elements built in.
Freidrich A. Hayek, “The Use of Knowledge in Society,” American Economic Review 35, No. 4 (September 1945), pp. 519–530.
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© 1994 Randall G. Holcombe
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Holcombe, R.G. (1994). A Model of Rights and Government. In: The Economic Foundations of Government. Palgrave Macmillan, London. https://doi.org/10.1007/978-1-349-13230-0_4
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