Property rights formation and enforcement in the competitive equilibrium as a function of input elasticities in the production and enforcement sectors
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1983
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Abstract
This dissertation explores the role of force in the creation of property rights regimes. Force is modeled as an intermediate good whose object is to obtain control over output. It is assumed that the share of control over output for a user of force is proportional to the ratio of the quantity of force employed by the user to the total quantity of force employed by all users. This assumption has desirable mathematical properties that aid in setting up models. A two-tier system of property rights is set up: intramural rights, pertaining to the internal organization of an enterprise, and extramural rights, pertaining to interactions between enterprises. Extramural rights are absent in anarchy, but intramural rights are present. Extramural rights are enforced by use of force; intramural rights are enforced by incentives and rewards. Individuals who are hired to use force on behalf of an enterprise but who renege on their contracts by using force against their employers are expelled into a class of outliers, individuals who capture average, rather than marginal, returns on their use of force as a class. The outlier class, equivalent to an open-access fishery, is instrumental in bringing about stability of the property rights regime; equilibrium obtains when the average return to being a member of the outlier class is equal to the marginal return to labor earned under the intramural employment contracts. Necessary and sufficient conditions for the existence of a stable equilibrium under competitive conditions are found. For stability, increasing returns to factor inputs for force are required. As opposed to conventional economic theory, in which a unitary factor elasticity for output is required for a competitive equilibrium, here, any less-than-unitary factor elasticity for output also generates a solution. Anarchistic and non-anarchistic settings are investigated. Government is modeled as an enterprise that seeks to increase the equilibrium real wage over a value that prevails in an anarchistic equilibrium. The increase is brought about by extracting created social surplus and redistributing it to all classes of labor except outliers, thus encouraging exit from the outlier class. Government is required to obtain its revenue by force (taxation). Under a constraint of a proportional tax on productive sector output, government can bring about an increase in the real wage when the outlier class has not so small a proportion of output that the resources released in the induced exit of outliers are not sufficient, when redistributed across the other individuals in the economy, to increase the opportunity cost of outliers by the required amount.
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Economics