Competitive Process, Competitive Waste, and Institutions

ECONOMIC models have by and large focused on the cooperative aspect of economic activity: that of mutually beneficial exchange in a world of scarcity. In so doing, economic theory has sought to illuminate the principle of “spontaneous coordination” by which the multifarious ends of individuals are woven into a network of transactions that benefit everyone involved. In the world normally modeled by economists, there is no explicit conflict or resource devoted to games of conflict. Property rights are enforced without cost and clearly defined areas of individual autonomy (opportunity sets) specify the range of individual endeavor. The ingredients that determine an individual’s opportunity set are essentially unalterable features of the world: human and nonhuman wealth legitimately possessed and exchange possibilities defined by externally provided prices. The clear definition of property rights is such that within them no attempt to transfer another’s wealth can be successful unless it is the result of voluntary exchange. In such a world the cost of conflict is effectively infinite, and thus no resources are devoted specifically to the conflicts or competitive processes of normal economic activity. No resources are devoted to bargaining, to monopolizing, toward increasing one’s market share, or to political wheeling and dealing. It is a world of complete rule of law, natural and social. One’s opportunities in society are rigorously defined and clearly understood by all in such economic models.