Institute of Governmental Studies

We examine a stark setting in which security or protection can be provided by self-governing groups or by for-profit enterpreneurs kings, lords, or mafia dons). Though self-governance is best for the population,it faces problems of long-term viability. Typically, in providing security the equilibrium market structure involves competing lords, a condition that leads to a tragedy of coercion: all the savings from the provision of collective protection are dissipated and welfare can be as low as, or even lower than, in the absence of the state.