Douglas C. North, Structure and Change in Economic History (1982), Chapter 3

North presents a model of the state as both a contract and an exploitative regime. The contract: the state provides goods (security and justice) in exchange for taxes. To promote growth (and thus taxation), the state provides public goods (to lower transaction costs; e.g. creates standardized weights and measures). The exploit: to maximize tax receipts, the regime alters property rights to extract the highest rents possible. The model predicts instability because of the tendency for states to produce inefficient property rights as well as economic change and decline.
Key Definitions:
State: an organization with a comparative advantage over violence, extending over a geographic area whose boundaries are determined its power to tax constituents. [Also see Weber]
== Notes: ==
*  Definition of the state must include property rights
*  Role of the state is to maximise wealth for society and to function as the third-party to enforce contracts [22] Can be done by written or unwritten constitution
States with wealth-maximizing tendencies:
*  State trades services (protection & justice) for revenue
*  State acts like a discriminate monopolist: devising property rights to maximize revenue
*  State is constrained by opportunity cost of its constituents since there always exist rivals to service provision
Implications for State Objectives:
*  Inconsistency between objectives: cannot maximize both societal and ruler output
*  Have to delegate power to agents of ruler –> reduction in rent for ruler
*  Services provided by rulers have supply curves that may be costly to the ruler depending on the technology and need for protection
*  The ruler may have competition for other regimes –> depends on the structure of competitive political units (geographic proximity, number of neighbours, supply curve of protection) [27]
*  Property rights will never be fully efficient because the ruler will agree to favourable property rights from some groups (to curry favour/secure rule) regardless of its effect on efficiency
*  Changes in information cost or technology can destabilise the state
Whenever the relative value of land/labour or anything else changes, the ruler would have to modify property rights and such in order to:
(a) appease possible alternative rulers and
(b) continue maximizing rents subject to the constraints of (a)
Problem of Free Ridership:
*  States are more stable than predicted because of free-riders
*  Theories originating in social science & Marxist thoughts do not provide convincing theoretical understanding for how to overcome the free-rider problem
*  The free rider problem has implications for the state:
1. Institutional innovation will come from above (b/c of free riding, citizens won’t come up with new institutions)  [32]
2. Revolutions will usually be executed at the top (e.g. a coup) from ruler’s agents
3. Where the ruler is from a particular class, some rules for successions will be devised to minimize the opportunities for disruptive change or revolution upon the ruler’s death