Political-jurisdictional institutional possibilities frontier

Here’s a short animation of what I’m calling the ‘political-jurisdictional institutional possibilities frontier’. I’ll come back to this to actually explain what it is (!) but the general idea is an extension of the institutional possibilities frontier of the new comparative economics (Djankov et al 2003) to incorporate social losses across three dimensions.

(Edit: It hasn’t uploaded to Vimeo properly, you’ll just have to use your imagaination until I can get around to finding a fix. The shape is kind of bowl-like or like an 1/8th of a sphere; or rather it’s a series of concentric Russian-doll-like bowl-like 1/8th spheres. Imagine.)

The point is to incorporate the IPF into a ‘political-jurisdictional Coase theorem’. The Coase theorem is about efficiency, but three transaction costs stand in the way of the perfect Coasean world: (1) political transaction costs (PTCs); the process about deciding policy is imperfect and we end up with inefficient policies all the time, sure; (2) jurisdictional transaction costs (JTCs); if only we could create new jurisdictions (or move between them) costlessly, inefficient policy wouldn’t matter; and (3) conventional/contracting transaction costs (CTCs); even if PTCs and JTCs prevent us from reaching an efficient outcome, if CTCs are low we can bargain ex post facto to cure the remaining political-jurisdictional externalities. Clearly the story as presented here is a simplification, but you get the point.

iso1

ipf1

3d ipf

We have an IPF that’s a surface instead of a curve. The surface represents all the institutions (political-jurisdictional) that are available to a society, but in the end it really represents all the allocations of property rights that are possible. However the societies decide to do things politically and jurisdictionally and commercially, they end up with some allocations of property, and they might be efficient or not.

The question is: where does the 45-degree total cost minimisation plane slice the IPF surface? That’s the efficient allocation of property — and therefore it’s also the efficient allocation of political authority and jurisdictions. But again, it’s really just a property allocation.

The more interesting question is: what does the society at the origin look like?! That’s Coase’s zero transaction cost world on the CTC-axis. But what does it mean to also have zero along the JTC-axis (you can create new states for free: Nozick) and the PTC-axis (once you have your state you can use it to redistribute perfectly: Lange/Rawls)? I suppose it is anarchy — unanimous, voluntary exchange — everything and anything.

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