Skip to main content
SpringerLink
Log in

State capacity and public choice: a critical survey

  • Literature Survey
  • Published:
Public Choice Aims and scope Submit manuscript

Abstract

‘State capacity’ is a term associated with a popular argument in fiscal sociology, history, and political economy regarding the role of the state in the process of economic development. Much of the applied and theoretical work on state capacity already shows some influence from public choice theory, the application of the economic approach to the study of political processes. These commonalities notwithstanding, this paper argues that public choice theory can offer further insights into this literature. In particular, the public choice approach can help illuminate concepts such as those of ‘state capacity’ and ‘governance,’ which are often casually employed in the literature. It can also help us understand the interaction between state capacity and competitive pressures in the ‘market for governance’. Finally, insights from public choice can illuminate the causal nexus between investment in state capacity and economic development.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1

Similar content being viewed by others

Notes

  1. I do not mean to claim that all contributors to the relevant literature see themselves as providing a solution to the paradox of government. While that conclusion explicitly is true in the case of some scholars (e.g., North et al. 2009), it may not be so for others. My claim simply is that their arguments and results effectively constitute one possible answer to the paradox.

  2. A growing empirical literature relies on Olson’s model to study the evolution of governance institutions of different societies throughout history (Kurrild-Klitgaard and Svendsen 2003; Vahabi 2011; Salter 2015; Young 2015, 2016).

  3. Olson was a longtime member and president of the Public Choice Society and made many contributions to the field.

  4. Brennan and Buchanan are two major figures in the public choice tradition.

  5. On the relationship between public choice as a positive research program, ideology and normative economics, see Boettke and Piano (2019).

  6. A growing literature within public choice focuses on the possibility of stateless social order. Powell and Stringham (2009) provide an early overview of this work. See Leeson (2007a, 2009, 2012) and Candela and Geloso (2018) for some empirical applications. More to the point, Leeson (2007b) and Leeson and Williamson (2009) investigate the theoretical and empirical conditions under which the very existence of a state is detrimental to economic development.

  7. See Martin and Ruhland (2018) for an attempt to reconcile public choice theory (and Buchanan’s brand of public choice in particular) with state capacity with an application to the Byzantine Empire.

  8. The historical relationship between fiscal and legal capacity seldom has been studied. An important exception is Johnson and Koyama’s (2014b) work on the evolution of the fiscal and legal regime in seventeenth century France. They argue that the decline of witch trials there at the time was symptomatic of the decision of the French government to centralize the administration of its legal system and the introduction of homogeneously enforced, country-wide legal standards. See also Shughart’s (2018) discussion of the adoption of a Civil Law regime in post-revolutionary France.

  9. See North and Thomas (1973) and Jones (2003) for two influential treatments of the “miracle”.

  10. Tax-farming referred to the practice of entrusting private contractors with the task of tax-collection in exchange for an advanced payment to the sovereign.

  11. Salter (2018) uses a similar framework to study the development of the modern Prussian state under Fredrick II.

  12. See Friedman (1977) and Koyama (2012, 2014).

  13. Scott (2017) argues that the very choice of what crops are and are not grown is endogenous to the threat of wealth capture.

  14. While the pre-Reformation Catholic Church was not exactly what people picture when they think of a modern state, neither was any other European sovereignty of the time. Indeed, the Church had the widest encompassing interest and taxing authority beyond the regional level of any sovereign outside of England (Ekelund et al. 1996; Leeson and Russ 2018).

  15. See Acemoglu and Wolitzky (2018) for an alternative theory of the extension of the rule of law to the broader population.

  16. On the effect of jurisdictional competition on public finance institutions in early modern Central Europe see Backhaus and Wagner (1987).

  17. With respect to congestion, nations face similar challenges as those identified in Buchanan’s (1965) theory of clubs.

  18. In the context of Fig. 1, the effect would be represented by a leftward shift in the equilibrium value of competition following the upward shift in the value of capacity. If the former effect is large enough, the equilibrium terms of trade will lie on a less-preferred curve, in other words, a curve that is closer to the origin.

  19. On the economics of revolutions, see Tullock (1974).

  20. One potential example of the inverse relationship between state capacity and the quality of governance supplied by the ruler (or rulers) is that of Somalia after the collapse of its national government in 1991. In the decade that followed, Somalians’ daily lives were governed by a mix of informal norms, traditional customs and local bands. While state capacity was almost non-existent during that period, Leeson (2007a) finds that the welfare of the local population rose under Somalian anarchy. The creation of a federal government in Somalia in 2012 signed the end of more of a decade of statelessness in the region.

  21. The more homogeneous Japan faced a lower cost of centralization than the more diverse China.

  22. Geloso and Salter (2018) provide an alternative, though compatible, criticism of standard arguments about the relationship between conflict, investment in state capacity, and long-run economic performance.

  23. O’Brien’s (2011) study of the evolution of the English fiscal regime between the 17th and early 19th centuries suggests that the framework also could explain some aspects of the rise of a high-state capacity regime in England. According to O’Brien (2011, p. 420), the transformation of the pre-Commonwealth English economy had encouraged the rise of a fiscal state, as the development of “[l]arger and denser zones of production, together with established and regular circuits for distribution and exchange” facilitated tax collection by the English government.

References

  • Acemoglu, D. (2003). Why not a political Coase theorem? Social conflict, commitment, and politics. Journal of Comparative Economics, 31(4), 620–652.

    Article  Google Scholar 

  • Acemoglu, D., Johnson, S., & Robinson, J. A. (2001). The colonial origins of comparative development: An empirical investigation. American Economic Review, 91(5), 1369–1401.

    Article  Google Scholar 

  • Acemoglu, D., Johnson, S., & Robinson, J. A. (2005). Institutions as a fundamental cause of long-run growth. In P. Aghion & S. Durlauf (Eds.), Handbook of economic growth (Vol. 1, pp. 385–472). Amsterdam: Elsevier.

    Google Scholar 

  • Acemoglu, D., & Robinson, J. A. (2001). A theory of political transitions. American Economic Review, 91(4), 938–963.

    Article  Google Scholar 

  • Acemoglu, D., & Robinson, J. A. (2005). Economic origins of dictatorship and democracy. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Acemoglu, D., & Wolitzky, A. (2018). A theory of equality before the law. National Bureau of Economic Research.

  • Acharya, A. & Lee, A. (2018). Economic foundations of the territorial state system. American Journal of Political Science, forthcoming.

  • Aghion, P., Jaravel, X., Persson, T., & Rouzet, D. (2018). Education and military rivalry. Journal of the European Economic Association, forthcoming.

  • Alesina, A., & Reich, B. (2016). Nation-building, National Bureau of Economic Research.

  • Alesina, A., & Spolaore, E. (1997). On the number and size of nations. Quarterly Journal of Economics, 112(4), 1027–1056.

    Article  Google Scholar 

  • Allen, D. W., & Barzel, Y. (2009). The evolution of criminal law and police during the pre-modern era. The Journal of Law, Economics, and Organization, 27(3), 540–567.

    Article  Google Scholar 

  • Backhaus, J., & Wagner, R. E. (1987). The cameralists: A public choice perspective. Public Choice, 53(1), 3–20.

    Article  Google Scholar 

  • Bardhan, P. (2016). State and development: The need for a reappraisal of the current literature. Journal of Economic Literature, 54(3), 862–892.

    Article  Google Scholar 

  • Barzel, Y. (1997). Economic analysis of property rights. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Barzel, Y. (2002). A theory of the state: economic rights, legal rights, and the scope of the state. Cambridge: Cambridge University Press.

    Google Scholar 

  • Batchelder, R. W., & Freudenberger, H. (1983). On the rational origins of the modern centralized state. Explorations in Economic History, 20(1), 1.

    Article  Google Scholar 

  • Batchelder, R. W., & Sanchez, N. (2013). The encomienda and the optimizing imperialist: an interpretation of Spanish imperialism in the Americas. Public Choice, 156(1–2), 45–60.

    Article  Google Scholar 

  • Baumol, W. J. (1990). Entrepreneurship: Productive, unproductive, and destructive. Journal of Political Economy, 98((5 Part 1)), 893–921.

    Article  Google Scholar 

  • Besley, T. (2007). The new political economy. Economic Journal, 117(524), F570–F587.

    Article  Google Scholar 

  • Besley, T. (2011). Pathologies of the state. Journal of Economic Behavior and Organization, 80(2), 339–350.

    Article  Google Scholar 

  • Besley, T., & Coate, S. (1997). An economic model of representative democracy. Quarterly Journal of Economics, 112(1), 85–114.

    Article  Google Scholar 

  • Besley, T., & Persson, T. (2008). Wars and state capacity. Journal of the European Economic Association, 6(2–3), 522–530.

    Article  Google Scholar 

  • Besley, T., & Persson, T. (2009). The origins of state capacity: Property rights, taxation, and politics. American Economic Review, 99(4), 1218–1244.

    Article  Google Scholar 

  • Besley, T., & Persson, T. (2010). State capacity, conflict, and development. Econometrica, 78(1), 1–34.

    Article  Google Scholar 

  • Besley, T., & Persson, T. (2013). Taxation and development. Handbook of public economics (Vol. 5, pp. 51–110). Amsterdam: Elsevier.

    Chapter  Google Scholar 

  • Boettke, P. J., & Piano, E. E. (2019). Public choice and libertarianism. In R. Congleton, B. N. Grofman, & S. Voigt (Eds.), The Oxford handbook of public choice. Oxford: Oxford University Press.

    Google Scholar 

  • Bonney, R. (1995). Economic systems and state finance: The origins of the modern state in Europe 13th to 18th centuries. Oxford: Oxford University Press.

    Google Scholar 

  • Brennan, G., & Buchanan, J. M. (1980). The power to tax: Analytic foundations of a fiscal constitution. Cambridge: Cambridge University Press.

    Google Scholar 

  • Brennan, G., & Tullock, G. (1982). An economic theory of military tactics: Methodological individualism at war. Journal of Economic Behavior and Organization, 3(2–3), 225–242.

    Article  Google Scholar 

  • Buchanan, J. M. (1965). An economic theory of clubs. Economica, 32(125), 1–14.

    Article  Google Scholar 

  • Buchanan, J. M. (1987). The constitution of economic policy. The American Economic Review, 77(3), 243–250.

    Google Scholar 

  • Bueno de Mesquita, E. D. (2018). Territorial conflict and endogenous rents. The Journal of Politics, forthcoming.

  • Candela, R., & Geloso, V. (2018). Trade or raid: Acadian settlers and native Indians Before 1755. Working paper.

  • Cowen, T. (1990). Economic effects of a conflict-prone world order. Public Choice, 64(2), 121–134.

    Article  Google Scholar 

  • Cox, G. W. (2017). Political institutions, economic liberty, and the great divergence. The Journal of Economic History, 77(3), 724–755.

    Article  Google Scholar 

  • Day, W. R., Jr., (2002). The population of Florence before the Black Death: survey and synthesis. Journal of Medieval History, 28(2), 93–129.

    Article  Google Scholar 

  • De Long, J. B., & Shleifer, A. (1993). Princes and merchants: European city growth before the industrial revolution. The Journal of Law and Economics, 36(2), 671–702.

    Article  Google Scholar 

  • Demsetz, H. (1967). Toward a theory of property rights. American Economic Review, 62, 347–359.

    Google Scholar 

  • Dincecco, M. (2011). Political transformations and public finances: Europe, 1650–1913. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Dincecco, M. (2015). The rise of effective states in Europe. The Journal of Economic History, 75(3), 901–918.

    Article  Google Scholar 

  • Dincecco, M., & Onorato, M. G. (2016). Military conflict and the rise of urban Europe. Journal of Economic Growth, 21(3), 259–282.

    Article  Google Scholar 

  • Dincecco, M., & Wang, Y. (2018). Violent conflict and political development over the long run: China versus Europe. Annual Review of Political Science, 21, 341–358.

    Article  Google Scholar 

  • Dittmar, J., & Meisenzahl, R. R. (2016). State capacity and public goods: Institutional change, human capital, and growth in early modern Germany. Working paper.

  • Ekelund, R. B., Jr., Hébert, R. F., & Tollison, R. D. (2002). An economic analysis of the Protestant Reformation. Journal of Political Economy, 110(3), 646–671.

    Article  Google Scholar 

  • Ekelund, R. B., Tollison, R. D., Anderson, G. M., Hébert, R. F., & Davidson, A. B. (1996). Sacred trust: The medieval church as an economic firm. Oxford: Oxford University Press.

    Google Scholar 

  • Friedman, D. (1977). A theory of the size and shape of nations. Journal of Political Economy, 85(1), 59–77.

    Article  Google Scholar 

  • Geloso, V., & Salter, A. W. (2018). State capacity and economic development: Causal mechanism or correlative filter? Working paper.

  • Greif, A. (2000). The fundamental problem of exchange: A research agenda in historical institutional analysis. European Review of Economic History, 4(3), 251–284.

    Article  Google Scholar 

  • Hayek, F. A. (1945). The use of knowledge in society. The American Economic Review, 35(4), 519–530.

    Google Scholar 

  • Hendrickson, J. R., Salter, A. W., & Albrecht, B. C. (2018). Preventing plunder: Military technology, capital accumulation, and economic growth. Journal of Macroeconomics, forthcoming.

  • Hirshleifer, J. (1994). The dark side of the force. Economic Inquiry, 32(1), 1–10.

    Article  Google Scholar 

  • Johnson, N. D., & Koyama, M. (2014a). Tax farming and the origins of state capacity in England and France. Explorations in Economic History, 51, 1–20.

    Article  Google Scholar 

  • Johnson, N. D., & Koyama, M. (2014b). Taxes, lawyers, and the decline of witch trials in France. The Journal of Law and Economics, 57(1), 77–112.

    Article  Google Scholar 

  • Johnson, N. D., & Koyama, M. (2017). States and economic growth: Capacity and constraints. Explorations in Economic History, 64, 1–20.

    Article  Google Scholar 

  • Jones, E. (2003). The European miracle: Environments, economies and geopolitics in the history of Europe and Asia. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Koyama, M. (2012). Prosecution associations in industrial revolution England: Private providers of public goods? The Journal of Legal Studies, 41(1), 95–130.

    Article  Google Scholar 

  • Koyama, M. (2014). The law and economics of private prosecutions in industrial revolution England. Public Choice, 159(1–2), 277–298.

    Article  Google Scholar 

  • Koyama, M., Moriguchi, C., & Sng, T. H. (2018). Geopolitics and Asia’s little divergence: A comparative analysis of state building in China and Japan after 1850. Journal of Economic Behavior and Organization, forthcoming.

  • Kurrild-Klitgaard, P., & Svendsen, G. T. (2003). Rational bandits: Plunder, public goods, and the Vikings. Public Choice, 117(3–4), 255–272.

    Article  Google Scholar 

  • Lane, F. C. (1973). Venice: A maritime republic. Baltimore: JHU Press.

    Google Scholar 

  • Latzko, D. A. (1993). The Concept of “Military Economies of Scale”. Explorations in Economic History, 30(4), 470–484.

    Article  Google Scholar 

  • Leeson, P. T. (2007a). Better off stateless: Somalia before and after government collapse. Journal of Comparative Economics, 35(4), 689–710.

    Article  Google Scholar 

  • Leeson, P. T. (2007b). Efficient anarchy. Public Choice, 130(1–2), 41–53.

    Article  Google Scholar 

  • Leeson, P. T. (2009). The laws of lawlessness. The Journal of Legal Studies, 38(2), 471–503.

    Article  Google Scholar 

  • Leeson, P. T. (2012). Ordeals. The Journal of Law and Economics, 55(3), 691–714.

    Article  Google Scholar 

  • Leeson, P. T., & Russ, J. W. (2018). Witch trials. The Economic Journal, 128(613), 2066–2105.

    Article  Google Scholar 

  • Leeson, P. T., & Williamson, C. R. (2009). Anarchy and development: An application of the theory of second best. The Law and Development Review, 2(1), 77–96.

    Article  Google Scholar 

  • Lopez, R. S. (1976). The Commercial revolution of the Middle Ages (pp. 950–1350). Cambridge: Cambridge University Press.

    Google Scholar 

  • Martin, A. G., & Ruhland, J. (2018). Politics as exchange in the Byzantine Empire. Working paper.

  • Martines, L. (1988). Power and imagination: City-states in Renaissance Italy. London: Taylor & Francis.

    Google Scholar 

  • Mayshar, J., Moav, O., Neeman, Z., & Pascali, L. (2018). The emergence of hierarchies and states: Productivity vs. appropriability. Working paper.

  • McBride, M., Milante, G., & Skaperdas, S. (2011). Peace and war with endogenous state capacity. Journal of Conflict Resolution, 55(3), 446–468.

    Article  Google Scholar 

  • McGuire, M. C., & Olson, M. (1996). The economics of autocracy and majority rule: the invisible hand and the use of force. Journal of Economic Literature, 34(1), 72–96.

    Google Scholar 

  • Monson, A., & Scheidel, W. (Eds.). (2015). Fiscal regimes and the political economy of premodern states. Cambridge: Cambridge University Press.

    Google Scholar 

  • North, D. C. (1979). A framework for analyzing the state in economic history. Explorations in Economic History, 16(3), 249–259.

    Article  Google Scholar 

  • North, D. C., & Thomas, R. P. (1973). The rise of the western world: A new economic history. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • North, D. C., Wallis, J. J., & Weingast, B. R. (2009). Violence and social orders: A conceptual framework for interpreting recorded human history. Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • North, D. C., & Weingast, B. R. (1989). Constitutions and commitment: the evolution of institutions governing public choice in seventeenth-century England. The Journal of Economic History, 49(4), 803–832.

    Article  Google Scholar 

  • O’Brien, P. (2011). The nature and historical evolution of an exceptional fiscal state and its possible significance for the precocious commercialization and industrialization of the British economy from Cromwell to Nelson. The Economic History Review, 64(2), 408–446.

    Article  Google Scholar 

  • Olson, M. (1993). Dictatorship, democracy, and development. American Political Science Review, 87(3), 567–576.

    Article  Google Scholar 

  • Piano, E. E. (2017). Free riders: The economics and organization of outlaw motorcycle gangs. Public Choice, 171(3–4), 283–301.

    Article  Google Scholar 

  • Powell, B., & Stringham, E. P. (2009). Public choice and the economic analysis of anarchy: A survey. Public Choice, 140(3–4), 503–538.

    Article  Google Scholar 

  • Riker, W. H. (1990). Political science and rational choice. Perspectives on positive political economy (pp. 163–181). Cambridge: Cambridge University Press.

    Book  Google Scholar 

  • Salter, A. W. (2015). Sovereignty as exchange of political property rights. Public Choice, 165(1–2), 79–96.

    Article  Google Scholar 

  • Salter, A. W. (2018). Private prerogative, public purpose: Public entrepreneurship and management in frederick the Great’s Anti-Machiavel. Working paper.

  • Salter, A. W., & Young, A. T. (2018). Polycentric sovereignty: The medieval constitution, governance quality, and the wealth of nations. Social Science Quarterly, forthcoming.

  • Schulze, W. (1995). The emergence and consolidation of the “tax state”: The sixteenth century. In R. Bonney (Ed.), Economic systems and state finance. The origins of the modern state in Europe 13th to 18th centuries (pp. 261–280). Oxford: Oxford University Press.

    Google Scholar 

  • Scott, J. C. (2017). Against the grain: A deep history of the earliest states. New Haven: Yale University Press.

    Google Scholar 

  • Shughart, W. F. (2018). Gordon Tullock’s critique of the common law. The Independent Review, 23(2), 209–227.

    Google Scholar 

  • Spruyt, H. (1994). Institutional selection in international relations: state anarchy as order. International Organization, 48(4), 527–557.

    Article  Google Scholar 

  • Stasavage, D. (2002). Credible commitment in early modern Europe: North and Weingast revisited. Journal of Law Economics and Organization, 18(1), 155–186.

    Article  Google Scholar 

  • Stasavage, D. (2011). States of credit: Size, power, and the development of European polities (Vol. 35). Princeton: Princeton University Press.

    Book  Google Scholar 

  • Tideman, T. N., & Tullock, G. (1976). A new and superior process for making social choices. Journal of Political Economy, 84(6), 1145–1159.

    Article  Google Scholar 

  • Tiebout, C. M. (1956). A pure theory of local expenditures. Journal of Political Economy, 64(5), 416–424.

    Article  Google Scholar 

  • Tilly, C. (1990). Coercion, capital, and European states, AD 990. Cambridge: Basil Blackwell.

    Google Scholar 

  • Tullock, G. (1974). The social dilemma: The economics of war and revolution. Blacksburg: University Publications.

    Google Scholar 

  • Vahabi, M. (2011). Appropriation, violent enforcement, and transaction costs: A critical survey. Public Choice, 147(1–2), 227–253.

    Article  Google Scholar 

  • Volckart, O. (2000). State building by bargaining for monopoly rents. Kyklos, 53(3), 265–291.

    Article  Google Scholar 

  • Volckart, O. (2002). No utopia: Government without territorial monopoly in medieval central Europe. Journal of Institutional and Theoretical Economics, 158(2), 325–343.

    Article  Google Scholar 

  • Weingast, B. R. (1995). The economic role of political institutions: Market-preserving federalism and economic development. Journal of Law, Economics, and Organization, 11(1), 1–31.

    Google Scholar 

  • Young, A. T. (2015). From Caesar to Tacitus: Changes in early Germanic governance circa 50 BC-50 AD. Public Choice, 164(3–4), 357–378.

    Article  Google Scholar 

  • Young, A. T. (2016). What does it take for a roving bandit settle down? Theory and an illustrative history of the Visigoths. Public Choice, 168(1–2), 75–102.

    Article  Google Scholar 

  • Zorzi, A. (2004). The popolo. In J. M. Najemy (Ed.), Italy in the Age of the Renaissance: 1300–1550. Oxford: Oxford University Press.

    Google Scholar 

Download references

Acknowledgements

I would like to thank Peter J. Boettke, Peter T. Leeson, David Skarbek, Mark Koyama, William F. Shughart II, Paola Suarez, three anonymous referees, and participants at the Southern Economic Association and Public Choice Society meetings for comments and suggestions. I am solely responsible for all remaining errors.

Author information

Authors and Affiliations

  1. George Mason University, Fairfax, USA

    Ennio E. Piano

Authors
  1. Ennio E. Piano
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Ennio E. Piano.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Piano, E.E. State capacity and public choice: a critical survey. Public Choice 178, 289–309 (2019). https://doi.org/10.1007/s11127-018-00631-x

Download citation

  • Received:

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11127-018-00631-x

Keywords

Search

Navigation