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Anarchy, Efficiency and Redistribution

  • Dieter Bös
  • Martin Kolmar

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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File URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonedp/bgse10_2000.pdf
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Paper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse10_2000.

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Length: 45
Date of creation: Sep 2000
Date of revision:
Handle: RePEc:bon:bonedp:bgse10_2000
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Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany

Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de

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