October, 2004

Efficient Anarchy - Working Paper

  • Peter Leeson

    Senior Fellow, F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics
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Can anarchy be efficient? This working paper argues that for reasons of efficiency, rational, wealth-maximizing agents may actually choose statelessness over government in some cases. Where markets are sufficiently thin or where government is prohibitively costly, anarchy is the efficient mode of social organization. If total social wealth under conditions of relatively lower levels of trade is not substantially smaller than under conditions of relatively higher levels of trade, the cost of government may exceed the social benefits it provides. Likewise if the cost of a formal state is sufficiently large, even substantial difference in social wealth in these two scenarios may prove too small to justify the formation of government from a cost/benefit perspective. The framework Leeson provides explains the persistence of anarchy in two major areas where economists tend to observe it: among primitive societies and at the global level.