What Kind of Order out of Anarchy? Self-governance, Autocracy and Predatory Competition

We examine a stark setting in which security or protection can be provided by self-governing groups or by for-pro...t enterpreneurs (kings, lords, or ma...a dons). Though self-governance is best for the population, it faces problems of long-term viability. Typically, in providing security the equilibrium market structure involves competing lords, a condition that leads to a tragedy of coercion: all the savings from the provision of collective protection are dissipated and welfare can be as low as, or even lower than, in the absence of the state. *Konrad: WZB and Free University of Berlin; Skaperdas: University of California, Irvine. Previous drafts of this paper were circulated under the title ”The Market for Protection and the Origin of the State” (dated December 1996 and onwards). We would like to thank seminar participants in a number of venues, including Florida International, Pompeu Fabra, PRIO’s group on civil wars, Simon Fraser, UC Riverside, UC Santa Barbara, University of Southern California, University of Toronto, and Yale, as well as Herschel Grossman, Jack Hirshleifer, Mike Munger, Debraj Ray, and two referees.