Violent Micro-Foundations of Commitment
Property rights and the ability to contract arise from the presence of specialists in violence, such as the police and the military, who threaten the use of force against agents who renege on their commitments. But how can these specialists themselves commit not to expropriate from others? The dominant view on this issue is the one laid out in the seminal work of Olson, who argued that as a specialist in violence faces fewer threats from competitors and becomes more entrenched, his incentives for full expropriation decrease, leading to reduced predation. This view has two drawbacks that this paper seeks to address. First, the Olsonian argument only works when embedded in an in nitely repeated setting. Unfortunately in such a setting it is possible to sustain equilibria with low predation even with a large number of specialists in violence. Second, the Olsonian model predicts that the level of expropriation is decreasing in the number of specialists in violence in an economy. This is in contrast to the notion that a system of checks and balances between more than one specialists in violence keeps predatory expropriation at bay. We address the first concern by presenting a model where commitment arises in a unique equilibrium of a one shot game. Our model shows that the amount of expropriation may actually decrease in the number of specialists in violence. This happens because once output is realised, specialists in violence find themselves in a prisoner's dilemma where even though full expropriation is the effcient outcome for them, it is a dominant strategy to co-operate with the producers and punish predation. Consequently the outcome without predation, which resembles the existence of commitment, emerges as the unique equilibrium.
ANEY, Madhav Shrihari and Ko, Giovanni.
Violent Micro-Foundations of Commitment. (2010). Research Collection School Of Economics.
Available at: http://ink.library.smu.edu.sg/soe_research/1161