SOME COUNTRIES PRODUCE SO MUCH MORE OUTPUT PER WORKER THAN OTHERS: Determinants of Economic Performance 2

Social control of burglary involves two elements. First is the teaching that stealing is wrong. Second is the threat of punishment. The threat itself is free—the only resources required are those needed to make the threat credible. The value of social infrastructure goes far beyond the notion that collective action can take advantage of returns to scale in avoidance. It is not that the city can put up fences more cheaply than can individuals—in a city run well, no fences are needed at all.

Social action—typically through the government—is a prime determinant of output per worker in almost any view. The literature in this area is far too voluminous to summarize adequately here. Important contributions are Olson (1965), Olson (1982), Baumol (1990), North (1990), Greif and Kandel (1995), and Weingast (1995).

A number of authors have developed theoretical models of equilibrium when protection against predation is incomplete. Workers choose between production and diversion. There may be more than one equilibrium—for example, there may be a poor equilibrium where production pays little because diversion is so common, and diversion has a high payoff because enforcement is ineffective when diversion is common. There is also a good equilibrium with little diversion, because production has a high payoff and the high probability of punishment deters almost all diversion. Rapaczynski (1987) gives Hobbes credit for originating this idea. Even if there is only a single equilibrium in these models, it may be highly sensitive to its determinants because of near-indeterminacy.