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Frontmatter -- BRIEF CONTENTS -- DETAILED CONTENTS -- LIST OF ILLUSTRATIONS -- LIST OF TABLES -- PREFACE AND ACKNOWLEDGMENTS -- CHAPTER 1. Taking Consequences Seriously: Introduction -- INTRODUCTION -- CHAPTER 2. Voting -- CHAPTER 3. Bargaining -- CHAPTER 4. Administering -- INTRODUCTION -- CHAPTER 5. Intergovernmental Relations -- CHAPTER 6. Government Competition -- CHAPTER 7. Ministries and Agencies -- INTRODUCTION -- CHAPTER 8. Specialization -- CHAPTER 9. Separation of Powers -- INTRODUCTION -- CHAPTER 10. The Value of Rights -- CHAPTER 11. Philosophies of Rights: Liberty and Redistribution -- CHAPTER 12. Property Rights -- CHAPTER 13. Free Speech -- CHAPTER 14. Civil Rights -- CHAPTER 15. Summary and Conclusion -- BIBLIOGRAPHY -- GENERAL INDEX -- INDEX OF NAMES

Economic theory distinguishes sharply between what a person wants and what he can have. "Preferences" describe what a person wants, and "constraints" describe the limits of what he can have. The collision of preferences and constraints yields the choices that economists study. The meaning of both terms is broad and flexible. Preferences and constraints help to distinguish between the internal and external viewpoints that H. L. A. Hart made famous. The internal viewpoint concerns preferences to perform legal obligations. A person who prefers to obey a law is willing to give up something to perform his legal obligation. The preference is intrinsic, not an instrument for securing something else of value. Conversely, a person who is indifferent to a legal obligation takes a purely instrumental approach towards obedience—he obeys only when doing so secures something else of value. What explains the distribution of preferences among people to obey a law? I will sketch part of the answer that emerges from economic and psychological studies. Finding an answer is important because when laws are reasonably just and many citizens intrinsically prefer to obey them, government is easier, and life is better than when most citizens are indifferent towards obeying the law.

Sustained growth occurs in developing nations through improvements in markets and organizations. Entrepreneurial innovation resembles biological mutation that is unpredictable before it occurs and understandable afterwards. It is unpredictable because it begins with an innovator who acquires private information and earns extraordinary profits. It is understandable because its ends with the public figuring out the innovation and all investors earning ordinary profits. These characteristics of innovation have important consequences for law and policy to foster economic growth. Government officials who rely on public information cannot predict which firms or industries will experience rapid growth. Consequently, industrial policies that promote growth are unlikely to succeed. Proponents of industrial policy today make the same mistake as the mercantilists whose interventions Adam Smith attacked as a cause of national poverty. In contrast, secure property and contract rights, and effective business law (especially the laws regulating financial markets), create conditions under which competition naturally produces entrepreneurial innovation and nations become rich. The main obstacle to sustained economic growth in poor countries today is ineffective civil and business law.

Sustained growth occurs in developing nations through improvements in markets and organizations. These entrepreneurial innovation resembles a biological mutation that is unpredictable before it occurs and understandable afterwards. It is unpredictable because it begins with the innovator possessing private information by which he earns extraordinary profits. It is understandable because its ends with the public figuring out the innovation and profits approaching the ordinary rate of return. These characteristics of innovation have important consequences for law and policy to foster economic growth. Specifically, government officials who rely on public information cannot predict which firms or industries will experience rapid growth. Consequently, industrial policies that promote growth are unlikely to succeed. Proponents of industrial policy today make the same mistake as the mercantilists whose interventions Adam Smith attacked as a cause of national poverty. In contrast, secure property and contract rights, and effective business law (especially the laws regulating financial markets), create conditions under which competition naturally produces entrepreneurial innovation and nations become rich.

Sustained growth occurs in developing nations through improvements in markets and organizations. Entrepreneurial innovation resembles biological mutation that is unpredictable before it occurs and understandable afterwards. It is unpredictable because it begins with an innovator who acquires private information and earns extraordinary profits. It is understandable because its ends with the public figuring out the innovation and all investors earning ordinary profits. These characteristics of innovation have important consequences for law and policy to foster economic growth. Government officials who rely on public information cannot predict which firms or industries will experience rapid growth. Consequently, industrial policies that promote growth are unlikely to succeed. Proponents of industrial policy today make the same mistake as the mercantilists whose interventions Adam Smith attacked as a cause of national poverty. In contrast, secure property and contract rights, and effective business law (especially the laws regulating financial markets), create conditions under which competition naturally produces entrepreneurial innovation and nations become rich. The main obstacle to sustained economic growth in poor countries today is ineffective civil and business law.

Economic models of politics usually assume that all politicians maximize their narrow self-interest, so the constitution and other laws should be designed to constrain the worst people. In contrast, I assume that different politicians have different traits of character, so the constitution and other laws should be designed to promote the best and demote the worst. Successful filtering of politicians partly determines whether a country enjoys good or bad government. In my model, each election serves as a filter, so, up to a point, more elections filter better. Countries that suffer bad government do so partly because politicians face too few elections for the citizens to identify the worst characters and remove them from office. These countries, however, should not necessarily shorten the term of office in order to have more frequent elections. Rather, these countries should reduce the depth of administration and create a federal structure with more elected governments. Similarly, these countries should tilt influence towards voters and away from party leaders by favoring winner-take-all elections.

Economic models of politics usually assume that all politicians maximize their narrow self-interest, so the constitution and other laws should be designed to constrain the worst people. In contrast, I assume that different politicians have different traits of character, so the constitution and other laws should be designed to promote the best and demote the worst. Successful filtering of politicians partly determines whether a country enjoys good or bad government. In my model, each election serves as a filter, so, up to a point, more elections filter better. Countries that suffer bad government do so partly because politicians face too few elections for the citizens to identify the worst characters and remove them from office. These countries, however, should not necessarily shorten the term of office in order to have more frequent elections. Rather, these countries should reduce the depth of administration and create a federal structure with more elected governments. Similarly, these countries should tilt influence towards voters and away from party leaders by favoring winner-take-all elections.

In the private sector, many small firms imply shallow hierarchy and narrow product lines. Similarly, in the public sector many small governments imply shallow hierarchy and narrow governments. This paper explains when replacing broad, deep governments with shallow, narrow governments increases stability and reduces corruption. My general conclusion is that developing nations plagued by instability and corruption probably have too few elections and too few democratic governments.