Reader Bleg: Transaction Costs and the Boundaries of the State

4 October 2011 at 2:14 pm 3 comments

| Peter Klein |

O&M reader VL asks:

I have noticed an interesting link between transaction cost economics and the explanation of the long-term political units size (as Braudel would have said, on “la longue durée”). For example, it is highly probable that classical Greek poleis were being integrated and desintegrated in response to changes in the nature of military and political contracts. I wish to explore that perspective in my own doctoral thesis and I would like to ask for your help. Do you know about any work that examines that matter? I have read books of Coase, Williamson, and North, and further articles of Alchian, Demsetz, and others. But I don’t know of any work treating organization economics from a political anthropological or political historical perspective.

I suggested privately that he look at David Friedman’s 1977 JPE paper and recent work by Alberto Alesina and coauthors, though none of these works from a transaction cost perspective. Can the rest of you offer some suggestions? If not TCE, then how about resource-based, dynamic capabilities, or property-rights perspectives on the boundaries of the polis?

Entry filed under: - Klein -, New Institutional Economics, Public Policy / Political Economy, Theory of the Firm.

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3 Comments Add your own

  • 1. Dick Langlois  |  4 October 2011 at 4:23 pm

    I incline to the Weber-Olson-North theory in which the size of the (extractive) state is determined by the minimum efficient scale of military control, which depends in turn on relative prices, technology, and costs of command-and-control (which are arguably transaction costs). Here are some readings I put up for a course:

    Meir Kohn distinguishes extractive (territorial) governments from governments by association, which are basically clubs to provide public goods. Athens and other city-states may be closer to the latter and not fit the model. So there is plenty to work on.

  • 2. gabrielrossman  |  4 October 2011 at 5:01 pm

    I’m increasingly skeptical that theories meant to describe market exchange are even that relevant to pre-modern societies. The market is a fairly culturally contingent accomplishment (and I do think it’s an accomplishment, in both the positive and normative sense) and so applying its models to much more primitive forms may be highly misleading. At best it might work in the same way that Ptolemaic physics works in describing the solar system (provided you add enough epi-orbits). Always remember that oikos is centuries older than agora and historically the real puzzle is not why make when you can buy, but vice versa.

    There are respects in which econ is obviously informative about early societies, for instance the “inflation is a monetary phenomena” concept is a very good explanation for the empirical observation that debasing coinage leads to an increase in the general level of prices and that the price controls that are often made in response inevitably lead to black markets and shortages.

    Nonetheless, I am highly skeptical that a concept like transaction costs can be unproblematically applied to antiquity. Rather, in primitive societies the size of states seems to be more about the transitivity of patronage and kinship structures and the institutionalization of the rule of law. See Fukuyama’s Origins of Political Order and Martin’s Social Structures.

    All that said, check out Kiser and Kane SSH 2007 for a principle-agent analysis of tax farming.

  • 3. Gary Shiu  |  5 October 2011 at 11:19 pm

    Yoram Barzel’s Theory of the State, Cambridge U press, and a shorter version of his thesis in Economics of Governance entitled Property Rights and Theory of the State in the augural issue of that journal

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