Donald J. Boudreaux

Government By Contract

Many organizations have characteristics that normally are associated with govern-ments, but which are created by private contract. Neighborhood associations and condominium associations are examples. These organizations often provide public goods, have the power to tax their members, and are governed democratically. They tend to be created by an entrepreneur who creates a contractual government and then sells shares in the government along with property ownership, with the expectation that the contractual government increases the value of the associated property. Property value is enhanced because the entrepreneur produces constitutional rules, which allows subsequent purchasers to avoid the decision-making costs inherent in reaching agreement at the constitutional level.

Is Nonprice Competition in Currency Inefficient

Some economists believe that the competitive survival of noninterest-bearing currency--the absence of price competition from markets for stored-value cards, banknotes, and token coins--implies a waste of resources on nonprice competition. The authors argue to the contrary that market forces drive issuers toward an efficient mix of price and nonprice competition. Where economic costs (rather than legal restrictions) rule out the delivery of interest on currency, competition exclusively along nonprice dimensions is consistent with efficiency. The authors graphically illustrate such a case.

The effects of monetary instability on the extent of vertical integration

Ronald Coase [1937] provided the theoretical foundation for all subsequent studies of the determinants of business integration. Although the transaction-costs paradigm he developed has been accused of lacking empirical conten t -of being tautological-even by some of Coases admirers [Alchian and Demsetz, 1972, p. 783; Williamson, 1985, p. 4], its influence is beyond question. Coases article remains modern because the particular causal factors that he specified as determining the size of firms continue to be emphasized in recent work. The Coasean tradition is preserved in the present paper. The general goal is to examine the effects of monetary instability on the extent of vertical integration. A major theme of the paper is that, according to the transactioncosts paradigm, the effect of such instability on optimal firm size is ambiguous: distortions in price signals caused by price fluctuations set in motion two distinct forces. One of these forces tends to increase the extent of intrafirm integration of production activities, while the other tends to reduce this integration. The special object of this paper is to investigate empirically the relative strengths of these opposed forces. This paper is not a test of the transaction-costs theory of the firm. Rather, the authors use this theory as the basis for an empirical investigation of the effects of monetary instability on the extent of vertical integration. With these ends in mind, the paper proceeds as follows: Section II reviews the transaction-costs theory of the firm. Section II I

Constitutional Change: No Escaping Hayek

Is there a tension between the “constitutional design” implications of The Calculus of Consent, as well as of Buchanan’s other works on constitutional economics, and Buchanan’s and Tullock’s appreciation for the creative potential of spontaneous-ordering forces? I argue that there is indeed such a tension – one so strong that, in the end, there is no escaping Hayekian conclusions.