Institutional Competition
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Institutional Competition

Edited by Andreas Bergh and Rolf Höijer

Why is competition between institutions usually viewed in a negative light, when competition is considered positive in most other economic contexts? The contributors to this volume introduce new perspectives on this issue, analytically and empirically exploring reasons for this perception.
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Chapter 2: A History of Thought on Institutional Competition

Roland Vaubel


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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