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20-02-2018

How defense shapes the institutional organization of states

Authors: Fabio Padovano, Yvon Rocaboy

Published in: Public Choice | Issue 1-2/2018

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Abstract

We analyze theoretically how the provision of military services explains the vertical and horizontal fragmentation of a state. The model innovates on the previous political economy literature which views such institutional arrangements arising only as a response to internal ”technological” forces, not to strategic interactions within the state and with neighboring states. The model explains how these interactions lead communities of individuals to choose among three alternative types of institutional arrangements: 1) a union, i.e., a setting wherein both the vertical and the horizontal fragmentation of a state is minimized; 2) an alliance, whereby a state becomes more vertically fragmented by creating an upper government tier devised to take advantage of economies of scale; 3) autonomy, where horizontal fragmentation is maximized, as no merging of communities occurs and no higher government tier is created. A series of simulations of the model define the conditions under which each alternative institutional arrangement emerges in equilibrium.

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Researchers have indeed examined how external threats, military expenditures and wars determine the size of government (Alesina and Spolaore 2005; Besley and Persson 2009, 2011), the evolution of public spending (Aidt et al. 2006; Aghion et al. 2014), the implementation of growth-improving policies (Cowen 1990), and the processes of nation building and development of state capacity (Ahlerup and Hansson 2011; Gennaioli and Voth 2015; Alesina et al. 2017a, b). Yet, the impact of military interactions between countries on the vertical and horizontal fragmentation of the state has so far been ignored. In the geopolitical literature Koyama et al. (2017) is a possible exception, as the authors consider how the arrival of Western powers in the nineteenth century triggered the modernization and centralization in Tokugawa Japan and the disintegration of the Chinese Qing empire.

See Cowen (1992) for a discussion of when governments provide stable equilibria out of a state of anarchy. See also Stringham (2017) for a general treatment.

See Long (2008) for a review of the economic analysis of deterrence in military contexts.

For example, we could have adopted the following specification for the benefit function: \(\left( \frac{1}{L^{B}}\right) ^{\frac{\mu -1 }{\mu }}\left( \sum _{j=1}^{L^{B}}\left( \frac{m_{l}^{A}}{m_{l}^{A}+m_{j}^{B}}\right) ^{\frac{\mu }{\mu -1}}\right) ^{\frac{\mu -1}{\mu }}\). If \(\mu \mapsto 1^{-}\), the benefit of the military sector tends to \(\underset{j}{\min }\left( \frac{m_{l}^{A}}{m_{l}^{A}+m_{j}^{B}}\right)\), which means that the benefit of community l depends on its probability of prevailing over the largest community of the adversary region (the best shot). If \(\mu \mapsto +\infty\), the benefit function is the one we use, namely community l’s average probability of defeating the communities of region B.

The welfare of an agent in community l from Region A may be given by: \(w_{l}^{A}=(U_{l}^{A}-1) \frac{F(n_{l}^{A})}{n_{l}^{A}}\), where F(.) is a Ricardian production function exhibiting constant returns to scales.

That value is chosen arbitrarily for purpose of illustration. The derivation of the lower bound of the result is available upon request.

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Title: How defense shapes the institutional organization of states
Authors: Fabio Padovano
Yvon Rocaboy
Publication date: 20-02-2018
Publisher: Springer US
Published in: Public Choice / Issue 1-2/2018
Print ISSN: 0048-5829
Electronic ISSN: 1573-7101
DOI: https://doi.org/10.1007/s11127-018-0516-6

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