Opting-Out: The constitutional economics of exit - Constitutional Economics - Statistical Data Included

American Journal of Economics and Sociology, The, Jan, 2002 by Peter Kurrild-Klitgaard

Introduction

IN THE MODERN STATE the ideal of a political community would very much seem to be that of a geographically circumscribed area within which exists a more or less fixed political hierarchy, which includes all individuals and all political institutions, and whose physical extension is contiguous and non-perforated. The possibility of a citizen, a group of citizens or some unit withdrawing in any way but by physically moving is indeed often viewed as being the cause of weakness, instability and, potentially, chaos. The economist Albert 0. Hirschman in his classic Voice and Loyalty (1970) argued that consumers in a market basically can react to declines in product quality either by voicing their dissatisfaction or by "exiting" by not buying it again, but that economists tend to concentrate too much on exit, and that the use of this option not only tends to limit the use of other options but also may be too drastic a tool (Hirschman 1970). More narrowly, a prominent constitutional scholar, Cass Sunstein, has argued that a constitutional right to secede "would increase the risks of ethnic and factional struggle; reduce the prospects for compromise and deliberation in government; raise dramatically the stakes of day-to-day political decisions; introduce irrelevant and illegitimate considerations into these decisions; create dangers of blackmail, strategic behavior, and exploitation; and, most generally, endanger the prospects for long-term self-governance" (Sunstein 1991: 634).

The present paper will argue otherwise, in fact to the contrary. An attempt will be made at demonstrating that a constitutional right to wholly or partly "exit' a political community, or specific institutions within that political community, all else being equal, may be the institutional guarantee against sub-optimal collective decisions. As such it may be what guarantees the strength and peace of a community rather than the opposite. This will be done by, first, presenting the familiar arguments of classical contractarians such as Thomas Hobbes and John Locke and by using some simple game-theoretical forms (Section I). Here it will be shown that the very different constitutional perspectives of Hobbes and Locke may be due to their different conceptualizations of the interaction in the state-of-nature, and that Locke's solution to the dangers of tyranny conceivably could be modeled as a constitutional right to "exit" unattractive arrangements.

Second, an extension of this perspective will be made to the structure of the political community, and the possible constitutional reform thereof, e.g., the relationship between individual citizens and the institutions of the public sector or between units within this (Section II). As such, the analysis supports the by now well-known and widely accepted claim of much rational choice analysis, that a decentralized, federal-like political community would seem to be most able to satisfy popular preferences in a polity with heterogeneous individual preferences (Buchanan & Tullock 1965; Bednar, Eskridge, & Ferejohn 1999). But it also extends this point by arguing that this conclusion might be applicable to a wider set of institutions than often believed.

I

States-of-Nature, Constitutional Set-up and Exit

IT HAS BY NOW BECOME almost standard procedure to utilize game theory to describe the interaction between individuals in a state-of-nature. This is in particular the case when it comes to the character of a Hobbesian state-of-nature and the interaction of the inhabitants therein as something resembling the notoriously famous "Prisoners' Dilemma" and to use this for some form of a contractarian analysis. (1) So far the same has not been done when it comes to the Lockean state-of-nature. This is peculiar in so far as the Lockean constitutional thought figures so prominently in the Western tradition. The present analysis suggests a common framework for analyzing the Hobbesian and the Lockean portrayals of the interaction in a state-of-nature and their quite different conclusions.

Preliminaries

To approach the modeling of the interaction of individuals in a state-of-nature without any centralized enforcing authority, we may begin by outlining the usual form of representing simple situations of interaction between two actors who are facing a simple choice between either cooperating with each other or not. Let us assume that we have a situation with two individuals, players I and II, where player I owns good [alpha], while player II owns good [beta]. To model the situation as a game of potential conflict we may make the initial and important assumption that player I prefers the property of II to his own ([beta] > [alpha]), and that the reverse is true for II ([alpha] > [beta]). We will also make the very general assumption, that the two individuals have a simple choice between two (and only two) options of either exchanging property and thus respecting the other's property rights (called C for cooperating) or violating the other's rights by stealing his property (D for defecting). We will simultaneous ly make the somewhat restrictive assumption that the players--unless otherwise noted--make their choices simultaneously and independently. We will finally assume that engaging in a violation of the rights of others carries some costs ([chi]) with it for the violator, at least in the form of time and resources spent stealing, but possibly also in the form of enforced sanctions.

Such a 2 X 2 game gives four possible outcomes, which we may define in terms of the goods [alpha] and [beta] and the cost [chi], and that we may signify through some simplified payoffs (p, r, s, t). (2) If both players respect each other's property and exchange property rights, then we have the outcome (C, C), where they both receive a payoff in the form of a cooperator's reward (r), i.e., I gives [alpha] to II and receives [beta] in return, while II gets [alpha] and gives up [beta] [[beta]-[alpha], [alpha]-[beta]]. If one player chooses C, while another chooses D, i.e., (C, D) or (D, C, the defecting player receives a traitor's payoff (t), while the cooperating player receives a sucker's payoff (s); if, for example, a defecting player I steals [beta] from a cooperative II, he will receive this good but also incur some costs [[alpha] [beta]-[chi],-[beta]], while if II steals [alpha] from I, he will similarly receive this while incurring costs [-[alpha], [alpha] [beta]-[chi]]. If they both steal simultaneously (D, D) , they will both receive a payoff of a defector's punishment (p), i.e., where they both have costs and while getting one good also loses another [[beta]-[alpha]-[chi], [alpha]-[beta]-[chi]]. This general form of the payoffs of what can be called a State-of-Nature Game is given in Figure 1.