THE EMERGENCE OF THE STATE: A GAME THEORETIC APPROACH TO THEORY OF SOCIAL CONTRACT

This paper discusses how a democratic state can emerge as a result of a social contract and how it evolves dynamically in a society with a public good that confronts the Prisoners' Dilemma. Individuals of the society play a game of institutional arrangements to establish a state in which there are two classes: an enforcer who collects tax and has punishing power and enforcees who pay tax. Our main result is that the state emerges with a positive proba bilityif and only if the productivity of the society is lower than a certain level which is deter minedby the population and the marginal productivity of the public good, and that the state will disappear as soon as the productivity becomes greater than this critical level.