New Thinking in Political Economy series
Edited by Andreas Bergh and Rolf Höijer
Chapter 2: A History of Thought on Institutional Competition
Roland Vaubel INTRODUCTION Economists distinguish between competition and anarchy. Competition is a social order in which individuals are free to make their choices without interference from others. They enjoy the right of property and freedom of contract. Interactions among individuals are based on mutual consent. Thus, competition is by deﬁnition peaceful. War is not a means of competition.1 Anarchy may not be peaceful. As Thomas Hobbes (1651/1962) warned, it may lead to a war of everybody against everybody. The ‘anarchistic equilibrium’ (Buchanan 1975) must not be confused with a competitive Paretooptimum. However, even in conditions of anarchy, there may be many peaceful competitive transactions. Anarchy is likely to permit more competition than despotism, and insecurity of possession prevails not only in anarchy but also in any real-world state. Competition may not only prevail among individuals or private ﬁrms in a market, it may also take place among public institutions. Usually, these public institutions belong to diﬀerent states but the term ‘institutional competition’ has also been applied to competing legal orders within the same territory. Just as competition in the market can be improved by a competitive order, that is, public institutions which maintain market competition within each country, (monopolistic) competition among the public institutions of diﬀerent countries can beneﬁt from an international competitive order which preserves peace and prevents governments from colluding with each other at the expense of third parties, notably their citizens. Historically, the rivalries among the rulers of diﬀerent states have hardly...
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