Proprietary Public Finance: on Its Emergence and Evolution out of Anarchy*

Proprietary rule, whereby the state is owned by a ruler who maximizes tax revenues minus the costs of governing, is a useful ideal type that describes many of the states that have ever existed. The study of proprietary rule and its public …nance, however, is comparatively scarce. I argue that proprietary rule emerges out of anarchy and its main alternative self-governance has di¢ culties surviving because of problems in providing e¤ective internal and external security. Competitive proprietary rule (or, organized anarchy) is the market structure for the provision of security that is more stable, but is highly ine¢ cient because all the savings that come out of the public provision of security are dissipated into contests for power among proprietary rulers. I also explore how competitive proprietary rule can be consolidated into more complex forms of governance. * I would like to thank Leonard Dudley and other participants at the conference on "Coercion, Welfare, and Public Finance," held at the Economics Department at Georgia State University, in September 2010, and seminar participants at Florida State University.