Anarchy, Monopoly, and Predation

Journal of Institutional and Theoretical Economics, Vol. 163, No. 3, 2007

Posted: 10 Jan 2007 Last revised: 28 Jul 2010

Peter T. Leeson

George Mason University - Department of Economics

Date Written: July 28, 2010

Abstract

The 'folk theorem' suggests that the shadow of the future coupled with the threat of lost business can create cooperation without government. Although institutions rooted in this theorem can support self-enforcing exchange in a wide variety of contexts, their potential to create cooperation is not limitless. In particular, the folk theorem may break down when some agents are physically stronger than others. Stringham's (2006) system of vertically integrated proprietary communities relies on the folk theorem to prevent proprietors from preying on their customers. I show that while innovative, this system does not work. A monopoly proprietor maximizes profits by optimally extorting his tenants in violation of voluntary contracts. The result is a predatory rather than voluntary system.

Suggested Citation

Leeson, Peter T., Anarchy, Monopoly, and Predation (July 28, 2010). Journal of Institutional and Theoretical Economics, Vol. 163, No. 3, 2007. Available at SSRN: https://ssrn.com/abstract=955696

Peter T. Leeson (Contact Author)

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States

HOME PAGE: http://www.peterleeson.com

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