The Red Queen and Open Access Orders

Acemoglu and Robinson cite the red queen effect as the primary conflict between a state and its society. The term is adopted from Alice and the Looking Glass and the literature in evolutionary biology in which organisms in a harsh environment must learn to adapt, evolve, and proliferate. Often, this harsh environment contains multiple species which not only coexist but coevolve. Such is the nature of states and societies. The people and the state are in a race against one another as each tries to overtake its counterpart. The state wishes to overpower the society while the society wishes to constrain the state. Both these happen in lockstep with the other. 

Acemoglu and Robinson identify a number of outcomes of this dance:

  1. Absent leviathan – a state that cannot resolve conflicts, coordinate actions, or provide public services
  2. Paper leviathan – a state that has the power to repress certain parts of society, but cannot resolve conflicts or provide public services
  3. Despotic leviathan – Despotic Leviathan – a state that has the power to coordinate and provide public services, but it uses its power to repress parts of society it deems unfit and provides public services the society sees as low value.
  4. Shackled leviathan – has the capacity to resolve conflicts, coordinate actions, or provide public services, but is constantly being challenged and checked by the society

The shackled leviathan is the middle way through these outcomes that is both hard to attain and provides the greatest amount of progress for the society. Much of this is due to the ability for people to form long term plans and see them carried out without fear of reprisal or roving bandits. The power of the government is counterbalanced with the power of society.

North, Wallis, and Weingast note disparities between various societies which try to overcome the problem of violence. Specifically they look at two broad measures:

  1. Limited access order- In these, society overcomes the problem of violence by using the state to create and allocate rents. When individuals and groups which have access to violence attain such rents, they have the incentive to restrain the amount of violence being pursued. Violence reduces the rents attainable by the rentholders. 
  2. Open access orders solve the problem through open access and competition. In most OAOs, the state has a monopoly on violence. Schumpeterian creative destruction plays a central role in this kind of society where innovation and competition constantly dissolves old rents and makes way for new ways of doing things. 

The three threshold conditions necessary for societies to move from LAOs to OAOs are 1) establishment of rule of law among elites, 2) adoption of already perpetually existing organizations, and 3) political control of the military.

How do these relate to Acemoglu and Robinson’s variations of leviathan? Rule of law among elites creates a structure amongst those who have access to violence and restrains them from using that violence against both each other and the populace at large. The use of already existing institutions gives authority to a societal framework that has already proven its value and efficiency merely by surviving the evolution of society. These are far more efficient than trying to instill top-down regulations and institutions on people who may be less willing to comply. Political control of the military means that the military does not operate out of its own will and cannot create a coup under its own initiative. The military can then become a tool for the common defense and not one that represses the society.

Groups and Individual Rationality

The primary factor leading to the success of any group, hierarchy, or institution is something that resonates through the whole of economics: game theory, development, organizational economics, industrial organization, public choice, and economic imperialism have found this principle necessary to the survivorship and effectiveness of group goals. This spills over into the real world when we begin talking about policies and the make up of organizational structures.

Group actions/policies must be individually rational for each member of the group.

You see, groups don’t make decisions, individuals do. In some sense, there is no such thing as collective action, but merely as an aggregate of the multitude of individual actions made by it members. Even then, there are multitudes of actions that happen outside the the control of said group, and these can also be taken into account as affecting the structure and perseverance of the group because of the transfer of information amongst individuals. Back to our point: Group actions must be individually rational. This is important, if the actions are not individually rational, many actions that are considered undesirable (from the group’s point of view) are more likely to occur.

In the example of providing public goods, it is individually rational for a farmer to allow more of his sheep to graze in the commons. No one is able to refuse him entry because the space is owned by no one and is open to all. (Demsetz has an excellent paper explaining why collective ownership is effectively the same as no ownership.) Since he has no incentive to allow less of his sheep into the common pasture and in fact is rewarded by the ability to have more sheep in lieu of lower costs from not having to purchase additional feed, he will continue bringing more sheep into the field. Eventually, more people will enter the commons, and each, having the same individual rationality as the first, will engage in the overgrazing of the commons. At which point, the public good the commons have provided will diminish to nothing and the farmers will have to turn elsewhere to feed their livestock. At no time until this point has it been rational for any one individual farmer to bring less livestock in the commons or cordon off specific plots to allow for regrowth of vegetation.

How do you incentivize individual action to make group action possible? In the case of the farmers and the commons, there are few ways to handle this. The first is for an entity to buy the commons and then ration out grazing via prices; the private entity can then take care of the commons and earn a profit (incentive) by doing so. The second is for the group of farmers once using the field as a commons to enter a collective agreement in which certain farmers graze on certain days, fees are taken up to pay for group entry and maintenance of the field, and to ensure cooperation, articles of punishment may be established. In larger forms, these rules of interactions are institutions. As long as there is a credible threat of being punished for defection, a collective agreement might be sustained. Other opportunities may arise, however, that are profitable for any one individual. In that case, it may be rational for an individual to switch to another group or collective agreement. In any event, it is the actions of the individuals that make up the actions of groups.

It can also be noted, that variations in the types of collective agreements and rules are the result of initial conditions and ongoing constraints. No one type of rule system is inherently better than any other unless you can first control for the constraints and then provide well-defined outcomes.

People engage in a specific group as long as it remains rational to do so.