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North: A neoclassical theory of the state

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North. 1986. A neoclassical theory of the state. In Rational Choice, ed. J. Elter, pp. 248-261.

In Brief

North presents a model of the state as both a contract and an extractionary regime. The contract: the state provides goods (security and justice, especially property rights) in exchange for taxes. To promote growth (and thus taxation), public goods will also be provided (to lower transaction costs--e.g. standardized weights and measures). The extraction: to maximize tax receipts, the regime alters property rights to extract the highest rents possible.

This model predicts lots of instability. Whenever the relative value of land/labor or anything else changes, the ruler would have to modify property rights and such in order to (a) appease possible alternative rulers and (b) continue maximizing rents subject to the constraints of (a).

Interestingly, North uses the free rider problem to explain why states are more stable than predicted. The free rider problem has four implications for state (see end of chapter), notably that revolutions will usually be executed at the top (e.g. a coup), institutional innovation will come from above (b/c average citizens have a free rider problem preventing them from trying to come up with new institutions), and so on.