The Market and the Jungle

Juan Carlos Carbajal, Marcelo Gallardo and Cesar Martinelli

Papers from arXiv.org

Abstract: We study how different institutions governing property rights and economic transactions shape occupational choices and welfare. Individuals in our society choose occupations that determine their production and consumption opportunities, anticipating either anonymous, voluntary market exchange supported by public enforcement (the market), or allocations through a random coercive hierarchy (the jungle) without monetary compensation. We establish conditions for occupational equilibria to exist in the market and in the jungle, and compare their performance. At a common occupational profile, the market maximizes aggregate surplus, whereas allocations in the jungle are Pareto efficient with monetary holdings fixed but need not maximize surplus. Endogenous occupational choices introduce an additional source of institutional differences. We find that a market occupational equilibrium outperforms a jungle occupational equilibrium, in aggregate terms, under two conditions: (i) every occupation in the jungle is available in the market, and (ii) the market is perfectly competitive, in the sense that prices cannot be manipulated by unilateral changes in occupations. We also establish an individual welfare comparison without this price-invariance condition: among identical individuals, everyone weakly prefers an occupational equilibrium in the market to a symmetric occupational equilibrium in the jungle. Our analysis places the institutional foundations of exchange at the center of the welfare comparison and provides a framework for studying coercive institutions that survive alongside markets.

Date: 2026-11
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