Constraining Predation: Formal and Informal Institutions

by on December 20, 2012 at 10:55 am in Economics | Permalink

If a monopoly on legitimate force (government) is set up to prevent private predation, then what constrains government predation? This new paper presents intriguing results (a snippet of the abstract):

Previous findings suggest that informal, cultural rules underlie constraints on government predation. Following this logic, this study asks how contract enforcement is achieved – through formal or informal mechanisms? After controlling for reverse causality, the empirical results suggest that informal cultural mechanisms protect against private predation and support contracting institutions while the formal institutions are insignificant.

The author is Claudia Williamson and it follows on her article in Public Choice and her Journal of Law & Economics piece with Carrie Kerekes. While limited by the quality of available measures of informal rules, this work is building a case that cultural norms do much heavy lifting when it comes to constraining both private and government predation.

Ted December 20, 2012 at 11:35 am

This seems consistent with the empirical results of Acemoglu-Johnson (2005) where they found essentially that contracting institutions don’t have first-order effects on growth. They posited that this may be because individuals find alternative contract enforcement mechanisms – cultural mechanisms seem as plausible as any.

Their paper can be found here:

http://economics.mit.edu/files/4467

prior_approval December 20, 2012 at 11:42 am

‘then what constrains government predation’

Democracy?

DocMerlin December 20, 2012 at 11:51 am

Democracy is a formal institution.

Alex K. December 20, 2012 at 12:24 pm

Somewhere, far away, there is a country call Russia, ruled by a thug named Putin.

Democracy does not really stop government predation there: if you don’t contribute to the thugs in government (or if you somehow become inconvenient for the extracurricular activities of the thugs in government), you get visits from armed guards who seem extremely eager to enforce every minor and vague existing regulation in such cases.

The Anti-Gnostic December 20, 2012 at 4:23 pm

Democracy doesn’t stop government predation here either.

In fact, “democracy” enables a level of wealth extraction and transfer payments that most Continental kings could only dream about.

Doug December 20, 2012 at 12:40 pm

Frederick the Great, an absolute monarch in 18th century Prussia, once wanted to shut down a windmill right outside his palace. He brought the case before the Berlin supreme court who ruled against him and let the windmill operator keep running.

It’s an anecdote but it illustrates a point. In pre-democratic Europe kings didn’t just go around seizing all the property of their subjects. In fact probably in most times and places in Europe property rights were more secure and absolute then they are now under modern Western democracies.

Even today in many modern non-democracies like Dubai, Singapore or Monaco property rights are highly secure and the government consumes a much lower percent of GDP than they do in Western social democracies. Consider also that most civilized countries also respect the property of foreigners as much as locally owned property, despite foreigners having no voting rights.

A better way to think about it is the roving vs stationary bandit. A government that’s managed under long-term wealth maximizing incentives will engage in only minimal amounts of predation, because that will result in more robust economic growth that will maximize the NPV of its future predation.

Governments don’t completely ravage their people for the same reason that dairy farmers don’t slaughter their cows. Whether the cows have a say in or not or not probably doesn’t matter.

JWatts December 20, 2012 at 12:19 pm

I would suspect that some on the Left will refuse to accept these results. If the underlying culture matters more than the rules and regulations, then you won’t be able to fix many problems by additional rules and regulations.

TMC December 20, 2012 at 12:38 pm

Who said they were interested in fixing problems?

mulp December 20, 2012 at 4:08 pm

I gather you believe the Newtown private predation is a good example of the cultural norms being more effective than We the People setting formal rules?

Of course, the cultural norm changing over the past three decades has ensured that We the People establish laws consistent with the cultural norm that is based on:
- ideology can not be trumped by facts because We the People prohibit facts being reported
- more guns designed to kill people are the best way to defend against the few crazies who grab one of the many guns designed to kill people and uses it for its intended purpose
- the high danger of guns designed to kill is why we have a constitutional right to own guns designed to kill people

Basically, We the People have codified the cultural norm of everyone having in their possession guns designed to commit mass murder.

After all, Red China turned from trying to kill Americans in Asia using assault weapons, to profiting from the free trade of selling their guns to kill Americans to Americans so Americans will use Chinese guns to kill Americans.

Sorry, but when I see the word predation I think predator which means killing, and it is clear that the dominate cultural norm is predation led by conservatives who claim to define the ideal cultural norm in their ideology and advocacy.

In fact, an underlying theme is it is dangerous to depend on more than two centuries of democratic republican experiment where We the People translate the cultural norms into the laws of the nation to provide a uniform rule of law instead of law of men. That only 53 million people elected Obama because less than 110 million people voted out of a likely 200 million citizens in the classic original intent meaning is seen by at most 10 million who probably didn’t bother to vote in large numbers, that We the People are going to high jack the cultural norms.

If you haven’t figured it out, I and “on the Left” and I keep explaining to people that Newtown is totally consistent with the current cultural norm. Individual responsibility is demanded at 100.00000% compliance with death the penalty of violating the cultural norm of individual responsibility. No government intervention in the lives of people ever because that is big government and taxes and the private sector is always superior. A fundamental right to be lethally dangerous as an individual.right because of the danger.

The “liberals” have of course been horrified in public. On the other hand, conservatives are endorsing the cultural norm of suicide by mass murder by their silence or by arguing the failure was in the lack of guns to assist in the suicide. You see, assisted suicide by gun is part of the cultural norm – more Americans should be prepared to assist with suicide by carrying a gun was the solution given by the Virginia governor.

And TMC, I am still not interested in fixing problems like Newtown because too many people are unwilling to question the cultural norm that makes Newtown so unremarkable. Killing children one by one or by the dozen has the same results – the number of children killed by guns this year will be no different than last or next. We the People are unwilling to change our cultural norm.

JWatts December 20, 2012 at 5:05 pm

Brevity is a virtue when it comes to forum posts.

Ray Lopez December 20, 2012 at 2:51 pm

I think the comment so far missed this point: “Previous findings suggest that informal, cultural rules underlie constraints on government predation”. Question for the group: the Roman Republic fell when senators began gaming the system and breaking certain ‘informal’ rules that were not in any constitution but obeyed (from memory). So when government begins to ignore today’s informal rules, will the republic decline and fall like the Roman Republic did?

whatsthat December 20, 2012 at 3:10 pm

Only the IV regressions support the notion that informal beats formal institutions. In cross-country regressions, with data on cultural attributes that is virtually by definition subject to a lot of noise, I will find it difficult to believe any exclusion restrictions. Such restrictions are required for the validity of the instrumental variable technique.

Nevertheless, this is interesting and very welcome work. I would urge attention to the (biased) OLS results though – here formal appears to be as important as informal institutions.

persuasive December 22, 2012 at 12:04 am

From a book, BLACK INDIANS -by William Loren Katz pg154; “In their own flamboyant ways our young (and this is the focus/not color really) criminals represent the socities from which they spring. They express their communities blocked goals. This helps explain why citizens see certain crooks as the crude cutting edge of a people’s justice system. They ramble along settling scores and shouting for the powerless from the cold steel of a gun barrel or knife blade.”
I hope this isn’t too far off topic. If informal constraints must exist for economic success, then, our system is rigged for these sort of outcomes which are just terrible sadness and eventual collapse.

David Zetland December 22, 2012 at 2:05 am

I just visited Brunei, where the Sultan — an absolute monarch — is “restrained” by public opinion. One example: his (secret) third marriage to a Malay TV presenter was exposed in the UK press. Locals then “disliked” her — as a Malay and commoner — and he eventually divorced her (as told by people I spoke to).

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