The purpose of this paper is twofold. We first develop a contractarian theory of redistribution. The existence of rules of redistribution is explained without any recourse to the risk-aversion of individuals. Hence, we depart from the standard legitimization of redistribution as fundamental insurance and interpret it as stemming from a principle of reciprocity in trade. The second purpose of the paper is to develop a theory of institutions that implement optimal allocations. We depart from the assumption of an exogenous enforcement of constitutional rules. Hence, the self-enforcement of constitutional rules is crucial for the implementability of allocations. This approach implies that there is no allocative difference between constitutional and ordinary rules. What makes constitutions different from ordinary rules is their potential ability to create a focal point that conditions the expectations of individuals on a certain equilibrium strategy. Hence, constitutions help to solve coordination problems, not cooperation problems.
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number
bgse10_2000.
Length: 45 Date of creation: Sep 2000 Date of revision: Handle: RePEc:bon:bonedp:bgse10_2000
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Find related papers by JEL classification: D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights D30 - Microeconomics - - Distribution - - - General D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances H10 - Public Economics - - Structure and Scope of Government - - - General
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Raghuram G. Rajan & Luigi Zingales, 1999.
"The Tyranny of Inequality,"
CRSP working papers
423, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
[Downloadable!]
James E. Anderson & Douglas Marcouiller, 1997.
"Trade and Security,I: Anarchy,"
NBER Working Papers
6223, National Bureau of Economic Research, Inc.
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