Positive theories of the state

Positive theories of the state hold a central role in Neoinstitutional Economics because the state sets and enforces the fundamental rules that govern exchange. The enforcement of property rights depends on power, and economies of scale in the use of violence frequently give a single agent – the state – a monopoly over the legitimate use of violence. But the relationship between property rights and political structures is complex, and exclusive property rights are consistent with a range of alternative power structures. Consider the following three arrangements:

1. A community where there are no legislative or judicial bodies, no enforcement agencies, and no common rules

2. A society where there are common rules that specify exclusive rights, a law-making body, courts of law, but no police force or army and hence private enforcement of law

3. A community where the state sets the rules, arbitrates in disputes, and enforces exclusive rights

We would be surprised to find case 1, the private enforcement of private rules, in communities where productive assets such as land are scarce, where people live together in groups, practice the division of labor, and trade among themselves. In order to protect private property under case 1, a large share of the resources of each household would have to be allocated to the private protection of life, limb, and nonhuman assets and to efforts at forming coalitions with other individuals.