The economics of the limited access order

van Besouw, Bram and Ansink, Erik and van Bavel, Bas (2015): The economics of the limited access order.

Abstract

Violence and coercion are key to understanding economic and social interactions in any society. This premise was used by North et al. (2009) to distinguish three `patterns of social organization' that societies have used to solve the problem of violence. We model one of these, the `limited access order', that is still dominant today. This order is characterized by an elite coalition that uses coercion to extract economic rents, while restricting violence and containing bandits. Since violence is key, we choose to apply insights from the economic literature on conflict and appropriation. Our model puts structure on the main elements of the limited access order. It allows us to assess some of its characteristics, by identifying conditions under which a sizeable elite emerges that is capable of limiting the activities of bandits and thereby provides order and stability. Our results show large variations in elite size, appropriation, production levels, and welfare across limited access societies due to only minor variations in exogenous model parameters, such as productivity, the cost of conflict, and the decisiveness of conflict. A striking result is that, within the limited access order, unproductive societies are faced with a high tax rate and a large elite, while productive societies are faced with a low tax rate and a small elite. The difference in additional productivity between these societies is offset by increased appropriation by bandits in absence of a strong elite, resulting in welfare being maximized for moderate levels of productivity.

• Item Type: MPRA Paper
• Language: English
• Keywords: limited access order, institutions, violence, appropriation, conflict
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; D - Microeconomics > D0 - General > D02 - Institutions: Design, Formation, Operations, and Impact; D - Microeconomics > D6 - Welfare Economics > D60 - General; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D72 - Political Processes: Rent-Seeking, Lobbying, Elections, Legislatures, and Voting Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D74 - Conflict ; Conflict Resolution ; Alliances ; Revolutions; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements; P - Economic Systems > P4 - Other Economic Systems > P48 - Political Economy ; Legal Institutions ; Property Rights ; Natural Resources ; Energy ; Environment ; Regional Studies

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