Opting‐Out: the Constitutional Economics of Exit

Peter Kurrild‐Klitgaard
Authors registered in the RePEc Author Service: Peter Kurrild-Klitgaard

American Journal of Economics and Sociology, 2002, vol. 61, issue 1, 123-158

Abstract: The central aspect, which makes markets operate differently than governments, is the ability of market actors to “exit” from future interactions. This point is applied to constitutional analysis, with an emphasis on the constitutional possibility of individuals or groups in a society “exiting,” wholly or partly, from the political community or from specific institutions within such. Hobbesian and Lockean states‐of‐nature are sketched using a common framework of some simple games, and the Lockean solution to the danger of tyranny is formalized. This solution is compared to the typical interaction in a market economy, where the possibility of “exit” from future interactions with disagreeable parties introduces severe restrictions on the possible exploitation. This analysis is extended to the political sphere, and it is argued in general terms that a constitutional set‐up utilizing a semi‐Lockean right to “exit” (e.g., federal structures with rights of secession, voucher systems, etc.) could be an efficient guarantee against sub‐optimal solutions and function so as to reduce redistributive conflicts and make welfare‐increasing transactions possible.

Date: 2002
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