Constitutions as Equilibria: A Game-theoretic Approach to Positive Constitutional Economics

The aim of this paper is to derive conditions under which either dictatorship or the rule of law are the equilibria of a post-constitutional game. It thus contributes to positive constitutional economics, i.e., the research program that is interested in explaining the emergence of constitutions and their change over time. In our model, society is assumed to consist of two groups one of which has a comparative advantage in using violence. Violence can be used to produce (transactional) security as well as to exploit the weaker group, which has a comparative advantage in producing a private good. Yet, exploitation is limited: it increases the chances of a revolution and reduces the incentives of the exploited group to produce the private good. The model identifies the conditions under which the two groups will comply with a social contract which consists of the exchange of high effort in producing the private good against provision of security. We also identify conditions under which a social contract is cheap talk and exploitation occurs.