Martin C. McGuire, UC Irvine

Abstract

Consider the interests of the leader of a group of roving bandits in an anarchic environment. In such an environment, there is little incentive to invest or produce and, therefore, not much to steal. If the bandit leader can seize and hold a given territory, it will pay him to limit the rate of his theft in that domain and to provide a peaceful order and other public goods. By making it clear that he will take only a given percentage of output--that is, by making himself a settled ruler with a given rate of tax theft--he leaves his victims with an incentive to produce. By providing a peaceful order and other public goods, he makes his subjects more productive. Out of the increase in output that results from limiting his rate of theft and from providing public goods, he obtains more resources for his own purposes than from roving banditry.

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