Book contents
- Frontmatter
- Contents
- List of contributors
- Series editors' preface
- Acknowledgments
- Introduction
- A note on the economics of institutions
- Empirical work in institutional economics: an overview
- 1 Toward an understanding of property rights
- Economic variables and the development of the law: the case of western mineral rights
- 2 Impediments to institutional change in the former Soviet system
- Why economic reforms fail in the Soviet system: a property rights–based approach
- 3 Transaction costs and economic development
- Public institutions and private transactions: a comparative analysis of the legal and regulatory environment for business transactions in Brazil and Chile
- 4 The evolution of modern institutions of growth
- Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England
- 5 Regulation in a dynamic setting
- The political economy of controls: American sugar
- 6 Price controls, property rights, and institutional change
- Roofs or stars: the stated intents and actual effects of a rents ordinance
- 7 Regulating natural resources: the evolution of perverse property rights
- Legally induced technical regress in the Washington salmon fishery
- 8 The politics of institutional change in a representative democracy
- A political theory of the origin of property rights: airport slots
- 9 The economics and politics of institutional change
- Paternalism in agricultural labor contracts in the U.S. South: implications for the growth of the welfare state
- Epilogue: economic performance through time
- Author index
- Subject index
- POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS
4 - The evolution of modern institutions of growth
Published online by Cambridge University Press: 05 June 2012
- Frontmatter
- Contents
- List of contributors
- Series editors' preface
- Acknowledgments
- Introduction
- A note on the economics of institutions
- Empirical work in institutional economics: an overview
- 1 Toward an understanding of property rights
- Economic variables and the development of the law: the case of western mineral rights
- 2 Impediments to institutional change in the former Soviet system
- Why economic reforms fail in the Soviet system: a property rights–based approach
- 3 Transaction costs and economic development
- Public institutions and private transactions: a comparative analysis of the legal and regulatory environment for business transactions in Brazil and Chile
- 4 The evolution of modern institutions of growth
- Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England
- 5 Regulation in a dynamic setting
- The political economy of controls: American sugar
- 6 Price controls, property rights, and institutional change
- Roofs or stars: the stated intents and actual effects of a rents ordinance
- 7 Regulating natural resources: the evolution of perverse property rights
- Legally induced technical regress in the Washington salmon fishery
- 8 The politics of institutional change in a representative democracy
- A political theory of the origin of property rights: airport slots
- 9 The economics and politics of institutional change
- Paternalism in agricultural labor contracts in the U.S. South: implications for the growth of the welfare state
- Epilogue: economic performance through time
- Author index
- Subject index
- POLITICAL ECONOMY OF INSTITUTIONS AND DECISIONS
Summary
THE SOVEREIGN'S DILEMMA
Consider an absolute ruler who controls a country with the aim of maximizing her wealth while protecting her own security. The picture may be a simplification, but it bears resemblance to the behavior of many rulers in history. The ruler faces a dilemma:
She can collect the subjects' resources beyond their basic subsistence needs and maximize her wealth in the short run; or
she can extend her horizon, lower the rate of taxation, leave resources with the subjects, and take measures to encourage private investments that expand the economy and thus increase her tax base. In future years a larger tax base will yield greater revenue.
Whether alternative 1 or 2 will maximize the present value of the ruler's expected flow of income in future years depends on a host of factors, which are summarized in the subjective interest rate that she uses to discount the future. For instance, if the ruler is old and has no heirs or favored successors, she may not be interested in future revenues and may heavily discount future income. Similarly, the ruler may fear that giving her subjects freedom and control of resources beyond bare necessities may lead them to rebel rather than to invest. Also, if attacks from neighboring states are imminent, the ruler's maximization calculations may suggest that her best alternative is to plunder the economy, particularly if she does not have access to effective capital markets.
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- Empirical Studies in Institutional Change , pp. 129 - 133Publisher: Cambridge University PressPrint publication year: 1996
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