Governance Without a State?

Policies and Politics in areas of Limited Statehood meets

Positive Political Economy of Anarchy:
A Review Essay

Alexander Fink*

University of Leipzig, Department of Economics, Leipzig, Germany

Version: October 2012

Abstract
The contributors to Governance Without a State? take the existence of areas of limited
statehood as a starting point and analyze forms of governance observable under these
circumstances. I provide an overview of Governance Without a State? by relating its
contributions to analyses of aspects of anarchy in the economics literature.

Keywords: Anarchy, Areas of limited statehood, Self-governance, State building

JEL codes: O17, K40,

*
Alexander Fink; Institut für Wirtschaftspolitik; University of Leipzig; Grimmaische Str. 12; 04109
Leipzig; Germany; Email: alexander.fink@uni-leipzig.de, Phone: +49 341 97 33 564

Electronic copy available at: http://ssrn.com/abstract=2177871

1 Introduction

The contributors to Governance Without a State? examine governance in areas

where states are absent, too weak, or unwilling to provide “governance by government”

(p. 9).1 Governance as understood by the editor of the volume, Thomas Risse, stands for

“institutionalized modes of social coordination to produce and implement collectively

binding rules, or to provide collective goods” (p. 9). Following the introduction by the

editor, nine chapters explore various aspects of governance in situations where social

cooperation does not take place in the shadow of a modern western democratic nation-

state. As Risse highlights (p. 2), today and historically the modern nation-state of the

western democratic variety has been the exception rather than the rule. To date, the vast

majority of humans have not lived their lives in western-style democratic states. The

present volume is highly relevant for social scientists who are interested in understanding

social phenomena under such alternative institutional circumstances.

My goal for this essay is to provide an overview of Governance Without a State?

by relating its contributions to works in the economics literature. The contributors to

Governance Without a State? take the existence of areas of limited statehood as a starting

point (p. 9) and analyze forms of governance observable under these circumstances.

Contributions to a parallel research program, which Boettke (2005, 2011) identifies as

“Positive Political Economy of Anarchism” or “Analytical Anarchism”, also study

phenomena in the absence of an entity that holds a geographic monopoly over the

provision of law and order (Boettke 2011, 128). Since the 1970s economists have added

to the stock of theoretical analyses of anarchy. Akin in spirit to the contributions of

Governance without a State?, since the 1980s economists have increasingly turned to

1
References that only include page numbers throughout the essay refer to contributions to Governance
without a State?

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Electronic copy available at: http://ssrn.com/abstract=2177871

providing empirical explorations of mechanisms that facilitate social interactions outside

the area of a state’s influence. 2

The articles collected in Governance Without a State? and the works on analytical

anarchism share in common the insight that social cooperation does not vanish when a

functioning state is absent. In such situations alternative modes of governance foster

social cooperation under the division of labor. Governance without a State? is a

collection of works by scholars from such diverse disciplines as political science,

international affairs, history, and law who participate in the Collaborative Research

Center ‘Governance in Areas of Limited Statehood’ funded by the German Research

Foundation.

“Limited statehood” is defined as the inability of a central authority to implement

and enforce its decisions in part of its territory, with respect to certain policy areas, with

regard to certain members of society, or for a period of time (pp. 4-5). The editor stresses

that “limited statehood does not mean anarchy in a Hobbesian sense” (p. 9). Contributors

to the research program identified by Boettke (2005, 2011) as Positive Political Economy

of Anarchism also do not assume that a Hobbesian fight of all against all persists when a

central authority with a monopoly over the use of force is absent. The term “anarchy” is

used here to indicate the absence of a state holding a monopoly over the use of force and

has therefore a similar meaning as the term “limited statehood” used by the contributors

to Governance without a State?

The essay proceeds as follows. Section 2 relates relevant contributions from

Governance without a State? to findings in the economics literature on governance in

homogenous and heterogeneous groups absent the support of a centralized government.

2
See Powell and Stringham (2009) for a recent extensive review of the literature on the political economy
of anarchy.

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Section 3 discusses select contributions of Governance without a State? in light of

insights from the economics literature on the problems of improving the lives of people in

developing countries by changing the governance conditions from the outside. Chapter 4

contains concluding remarks.

2 Endogenous governance

Several contributors to Governance without a State? analyze circumstances in

which individuals or firms devised rules constraining themselves without relying on

state-provided enforcement. The contributions are related to the theoretical and empirical

economics literature on governance absent a centralized government, which can roughly

be divided into two groups: First, analyses of governance mechanisms in socially

homogenous groups and, second, investigations of mechanisms used to facilitate

interactions between socially distant individuals.

2.1 Cooperation and legal institutions in homogenous groups

Barriers to effective non-centralized mechanisms of governance are lowest, when

individuals have relatively close ties – be they religious, professional, ethnic, or

otherwise. In small groups consisting of homogeneous members, it is relatively cheap to

monitor potential defectors and punish those caught red-handed. When individuals

expect to interact with one another repeatedly and information concerning an individuals’

past behavior travels quickly among the members of the group, the individuals’ strive for

a good reputation fosters social cooperation under the division of labor. Therefore,

peaceful interactions are likely to persist in the absence of a centralized enforcement

authority that protects personal, property, and contractual rights of individuals.

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 In the chapter “Law Without a State? A ‘New Interplay’ Between State and

Nonstate Actors in Governance by Rule Making” Schuppert provides an overview of

insights from analyses of alternative legal systems located outside of modern nation

states: self-governance in microsocieties, transnational regulatory systems, and

international standard setting. In his review of works concerning reputation-based

governance in microsocieties, Schuppert discusses contributions well-known by scholars

with an interest in self-governance. He discusses aspects of Bernstein’s analyses of

diamond traders (1992) and the cotton industry (2001) and of Ellickson’s (1991)

investigation of Californian cattle rangers. With respect to nonstate transnational

regulatory systems, Schuppert focuses on the lex sportiva, the rules of international

sports. He relies mostly on Ipsen (2008) and argues that the self-regulated lex sportiva

functions well due to a hierarchical organization of competitive sports. Under the roof of

the International Olympic Committee national and regional associations organize various

sports in geographic units. Given the hierarchical organization the members have an

incentive to respect the decisions of the international Court of Arbitration for Sports in

Lausanne. In his review of the literature on standard setting, Schuppert finds that various

groups, such as producers, consumers, public authorities, or academics, are involved in

the process of standardization and argues that due to its similarity to lawmaking similar

normative requirements apply.

In his conclusion, Schuppert lays out potential future research avenues. Among

others, Schuppert (pp. 82-83) calls for detailed analyses of “systems of law in areas of

limited statehood” that include “customary law, local law, traditional law, and religion-

based law.” There are numerous examples of such studies to be found in the economics

literature. The coalition governance structure among medieval Maghrebi traders (Greif

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1989, 1993), the rules of Amsterdam securities traders in the 17th century (Stringham

2003), the coalition formed by merchants of British and American origin in 19th century

Mexican California (Clay 1997), and the legal systems developed by individuals on the

U.S. frontier in the 19th century (Anderson and Hill 1979, 2004), by inhabitants of

medieval Iceland (Friedman 1979), and by 18th century pirates (Leeson 2007) are all

analyses of incidents where socially homogenous group members could maintain social

cooperation via the threat of multilateral punishment in the absence of a modern western-

style nation state.3 These studies of episodes from the more distant past may provide

some orientation for investigations of the more recent past in areas of limited statehood.

Recent investigations into the role of superstition can be considered as

contributions to this line of research on governance in areas of limited statehood (Leeson

2012a, 2012b, 2012c, 2012d, 2012e; Leeson and Coyne 2012). Earlier contributions on

the effect of reputation on social cooperation in relatively homogenous groups

(Bernstein1992; Ellickson 1991; Greif 1989, 1993; Stringham 2003; Clay 1997;

Anderson and Hill 1979, 2004) do not explicitly take the role of beliefs into account.

They implicitly assume belief homogeneity, but do not analyze potential effects of beliefs

on legal systems.

Leeson does just that and provides a collection of law and economics analyses of

“objectively false beliefs” or superstition (Leeson 2012f, 186). A deeper understanding

of superstitions may prove helpful for our understanding of institutions in today’s areas

of limited statehood. Leeson investigates how beliefs affect the development of rules and

the functioning of accompanying legal institutions very different from the official ones

encountered in modern western democracies. For instance, Leeson argues that medieval

3
See Powell and Stringham (2009) for a recent extensive review of the literature on anarchy by political
economists.

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monks were able to use curses to protect their property (2012b), that especially from the

15th to the 17th century the Catholic Church used animal trials to reinforce the beliefs of

its subjects in areas where heretics undermined those beliefs (2012c), that oracles

increase the level of social cooperation among members of the Azande – an African tribe

in whose belief system witchcraft is central (Leeson 2012e), that Gypsy Law uses the

superstition of members of Gypsy societies to foster honest behavior by turning worldly

crimes into crimes against the cherished belief system (2012d), that given superstitious

beliefs judicial ordeals help to separate the guilty from the innocent in today’s Liberia

(Leeson 2012a; Leeson and Coyne 2012).

The case of Liberia, a present-day area of limited statehood, demonstrates how the

international community’s efforts to implement legal institutions along the lines of

western-style democracies may lead to unintended negative consequences when the

positive effects of superstition are not understood (Leeson and Coyne 2012). Under

pressure from foreign actors, the Liberian government banned ordeals which are regarded

as inhumane. Unfortunately, the ban appears to have led to an increase in crime in

Liberia (Leeson and Coyne 2012).4 The analyses of the effects of superstition by Leeson

are just one example of the kind of innovative forms research on governance in areas of

limited statehood may have to take.

The chapter “Racing to the Top? Regulatory Competition Among Firms in Areas

of Limited Statehood” by Börzel, Héritier, Kranz, and Thauer is also related to the self-

governance literature in economics. Börzel et al. investigate under what conditions firms

have an incentive to self-regulate in areas of limited statehood when no central authority

can threaten to impose regulation on them. They hypothesize that firms regulate

4
I will come back to the problems faced by outside actors to contribute to welfare-increasing change of
institutions they are not familiar with in section 3.

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themselves (1) if they can increase the value of brand products by adhering to strict

regulations, (2) if by pressing for government regulation they can increase entry barriers

for foreign competitors, (3) if non-governmental organizations’ threaten their reputation,

and (4) if their country of origin exerts regulatory pressure. They assess their hypotheses

by analyzing the behavior of firms with regard to environmental regulation from several

industries in South Africa. They find their case studies to, by and large, support the four

hypotheses.

Related to the economics literature on self-governance, they argue that firms may

have an incentive to build up reputational capital through self regulation – similar to an

individual in a situation where information about past behavior travels quickly. They

further discuss the incentives of the members of certain industries and find that they use

the state’s powers to regulate their industry, raising the entry barriers for potential

competitors. This finding is hardly surprising especially in areas where the

malfunctioning state is rarely held accountable by the larger population. There is a vast

literature on the economics of regulation in recent times kicked off by Stigler (1971) who

argues that interest groups influence state agencies to protect the industry’s members

from competition.

2.2 Cooperation among heterogeneous groups and conflict

The analysis by Schuppert and the chapter by Börzel et al. neither explicitly

discuss the limits of reputation as a mechanism to foster cooperation nor do they discuss

mechanisms that enhance cooperation but do not rely on reputation. Reputation and

ostracism are less effective as enforcement mechanisms the more socially distant

individuals are. However, reputation mechanisms can be leveraged to enable interactions

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between socially distant individuals. For instance, Greif (2002) provides an analysis of a

“community responsibility system” in medieval Europe that fostered exchanges between

members of different communities. It was based on the ability of insiders to punish other

insiders who cheated on outsiders.

Furthermore, there are alternative mechanisms that may facilitate peaceful social

interaction in the absence of a centralized enforcement authority. Leeson (2005, 2006,

2008) argues that socially distant individuals can signal their credibility by engaging in

costly activities that increase their social homogeneity. For instance, a trader can learn

the language, adopt the religion, or make himself familiar with the customs of a socially

distant group. Leeson (2005, 2006, 2008) provides evidence that individuals made use of

social-distance-reducing signals, for instance, from pre-colonial Africa and medieval

Europe. In these cases central authorities with a monopoly over the use of force were

absent and circumstances of limited statehood, or anarchy, prevailed. Especially for the

investigation of areas of limited statehood that are characterized by the presence of

fractionalized groups, insights from mechanisms that contribute to peaceful inter-group

interaction may prove helpful.

Although through reputation and signaling individuals within one group and

across groups can foster social cooperation, obviously not all human interaction is

peaceful. Predation, private and public, has been a commonly observed phenomenon

throughout recorded human history. With the existence of predation, the issue of the

provision of protection arises.

Chojnacki and Branovic in their chapter “New Modes of Security: The Violent

Making and Unmaking of Governance in War-Torn Areas of Limited Statehood” show

that markets for protection provided by individuals or organizations in the absence of an

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accessible central enforcement authority exist in areas of limited statehood today.

Chojnacki and Branovic discuss three types of direct security provision in the absence of

a functioning central government: Coercive security provided, for instance, by warlords,

self-protective security provided by the group of potential victims themselves, and

commercialized security provided by professional security companies. In their

subsequent discussion of markets for security they heavily rely on the theoretical works

on the market for protection by economists Stergios Skaperdas and Kai Konrad

(Skaperdas (2001, 2002), Konrad and Skaperdas (2005)).

Unfortunately, they appear to misunderstand the results that the various models by

Konrad and Skaperdas yield. Based on the discussion of the contributions by Konrad and

Skaperdas and others, Chojnacki and Branovic (p. 100) conclude that on competitive

markets for the provision of protection the providers have to choose “whether to invest in

the production of a secure environment (areas of strategic security) or to perpetuate the

violent appropriation of resources.” Chojnacki and Branovic term the situation of

perpetual violence “strategic insecurity.” But whereas overt conflict in the models of

Konrad and Skaperdas is an outcome of the strive of competing warlords for rents in

prisoners dilemma situations, Chojnacki and Branovic suggest that warlords have an

interest in violence per se or what they call “strategic insecurity.” In contrast, whereas

the individual warlords in Konrad and Skaperda’s models behave strategically, overt

conflict is not an outcome of any individual warlord’s choosing but a result of their

interaction. The individual warlord has an interest in peacefully holding a territorial

monopoly over the use of force and being able to appropriate the accompanying rents.

Chojnacki and Branovic further argue that conflict is more common in areas that are rich

in valuable resources and that the population suffers more from predation the more

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fragmented the market for protection is in an area. They finally discuss how geographic

circumstances may affect the dynamics of violence.

Markets for the decentralized provision of protection are not a recent

development, but can be found throughout history and have been analyzed by social

scientists from a rational choice perspective. For instance, Volckart (2002) provides a

discussion of competing feudal governments that provided protection, Gambetta (1993)

analyzes the market for private protection provided by the Sicilian Mafia, Fink (2011,

2012) maintains that, among other things, the members of the medieval Hanseatic League

provided one another with protection services, and Skarbek (2010, 2011, 2012)

investigates the protection and predation behavior of peculiar organizations in the US –

prison gangs.5

The above examples suggest that peaceful interaction can be maintained under

anarchy and that predation can be contained under even the direst circumstances.

Members of adjoining disciplines may benefit from extensively consulting the empirical

and theoretical economics literature on self-governance in general and the decentralized

provision of protection in particular.

3 Exogenous governance

The attempts of the western world to bring development to poor countries have

been manifold and, though maybe spawned by noble intentions, mostly unsuccessful.

With special reference to Sub-Saharan Africa, Easterly (2009) provides an account of

how development support efforts of the western world have escalated since WWII and

5
Gambetta (1993, 4) is anxious to point out that even when individuals are forced to pay for protection, it
is not implied that the purchased protection is useless in the sense that it only “protects” against the
provider of protection. For the customers paying for the received services may be a lesser evil.

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today encompass (1) isolated projects, (2) structural adjustments of economic and social

policies, (3) institutional change aiming at reducing corruption, establishing democratic

structures, and securing private property rights, and (4) ending civil wars and

restructuring failed states with the intent to export liberal democracy.

The focus here is on efforts to change governance institutions by using measures

from one of the four categories above. I roughly separate non-invasive from invasive

efforts to change governance institutions abroad. Non-invasive efforts include

“traditional” measures such as providing expertise, financial support, and humanitarian

aid to facilitate favorable governance changes. Invasive efforts include the taking over of

governmental functions such as the provision of protection services by foreign-led

organizations and may involve military involvements of foreign states.

3.1 Non-invasive

Liese and Beisheim in the chapter “Transnational Public-Private Partnerships and

the Provision of Collective Goods in Developing Countries” discuss non-invasive

exogenous efforts to change the governance structure in areas of limited statehood. They

assess the effectiveness to provide collective goods of 21 public-private partnerships

(PPP). Liese and Beisheim (p. 117) adopt the definition of public-private partnerships as

“institutionalized transboundary interactions between public and private actors that aim at

the provision of collective goods.” They argue that especially in areas of limited

statehood PPPs can be considered a separate form of governance because they are usually

neither initiated nor steered by governments.

Liese and Beisheim attempt to measure effectiveness along three dimensions:

Output measures the goods and services PPPs provide to their customers, Outcome

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indicates how successful the PPPs are in changing the behavior of the addressed people,

and Impact measures the success of a PPP to contribute to the solution of the problem it

identified. Liese and Beisheim find that effectiveness varies across PPPs and aim at

explaining the observed variation. For this purpose they formulate five hypotheses: (1) A

larger degree of institutionalization – establishing rules and obligations with

accompanying enforcement mechanisms for their members – increases effectiveness. (2)

Better process management improves effectiveness. (3) Local capacity building adds to

effectiveness. (4) More organizational learning makes PPPs more effective. (5) The

higher the involvement of stakeholders the more effective are PPPs. From their analysis

of the 21 chosen PPPs they conclude that the level of institutionalization and the quality

of process management matter for the effectiveness of PPPs whereas the effects of the

other independent variables on effectiveness are inconclusive.

Although Liese and Beisheim do not put it this way, the aspect of

institutionalization can be regarded as measures of how the investigated organizations

approach the two interrelated fundamental barriers to the successful provision of

development aid: incentive problems and knowledge problems. In order for development

aid to be successful the incentives of the aid providers and those of the receivers of aid

efforts have to be aligned with the common goal of the developing efforts. Furthermore,

the providers of development aid have to be knowledgeable about the wants of the aid

receivers. Even when the incentives of aid recipients and altruistic development aid

providers are well-aligned, dispersed subjective knowledge of place and time cannot be

transmitted to other participants as effectively as in the presence of a well-working price

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mechanism. Therefore, donor organizations are likely to be groping in the dark unable to

help the people they want to support.6

Best equipped to overcome the barriers to provide development support may be

those who are integrated in and have detailed knowledge of local environments, are able

to receive direct feedback from the recipients, and can be held accountable for their

actions. Easterly (2006a, 2006b) calls this group of individuals and organizations

“searchers”. He separates them from “planners” who may have the best of intentions but

are detached from local circumstances and thus do not have the requisite knowledge to

help. 14 out of the 21 public-private partnerships assessed by Liese and Beisheim carry

the words “Global”, “World”, or “International” in their names as, for instance, the

Global Fund to Fight AIDS, Tubercolosis and Malaria, the International AIDS Vaccine

Initiative, or the World Commission on Dams. The names suggest that these public-

private partnerships are likely to fall into the camp of the planners.

Unfortunately, it does not come at a surprise that an analysis of the effectiveness

of public-private partnerships is dominated by what seem to be initiatives developed by

people distant from the recipients. Searchers, to stick to Easterly’s (2006a, 2006b)

terminology, who act locally are less likely to organize as public-private partnerships that

end up on the radar of social scientists who tend to be as distant from the developing

world as the planners of the development aid community.

3.2 Invasive

The chapter “International Legal and Moral Standards of Good Governance in

Fragile States” by Ladwig and Rudolf does not contain a positive analysis. Limited to a

6
Williamson (2009) provides a detailed discussion of the knowledge and incentives problems faced by
donors and recipients.

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normative analysis it stands out from the other contributions to Governance without a

State? and also from the contributions in economics on the Positive Political Economy of

Anarchism. Ladwig and Rudolf provide a normative discussion of standards of good

governance to be found in public international law. They argue that good governance

implies the guarantee of human rights, the rule of law, the responsiveness of governments

to the desires of the people, and public participation. According to Ladwig and Rudolf

this standard of good governance applies to all actors that fulfill governance functions.

Thus, governments of fragile states, warlords, NGOs, and private enterprises are in

principle also bound by the standards of good governance of international law.

With regard to the international community’s role in fragile states, Ladwig and

Rudolf (p. 223) conclude that “as the responsibility of the international community is

subsidiary to that of the state concerned, its fulfillment is geared towards the creation of

conditions in which the state can live up to its primary responsibility. Consequently, the

activities of the international community must aim at establishing the material, structural,

and societal preconditions of consolidated statehood unless it is evident that nonstate

structures are at least equally effective for the protection of human rights, equally

respectful of the rule of law, equally responsive, and equally open to public

participation.” In brief, it appears that Ladwig and Rudolf favor interventions, invasive if

necessary, by the international community if it is evident that such interventions would

improve the governance situation in areas of limited statehood. Irrespective of the

normative question under what conditions invasive interventions would be desirable, only

positive analyses help to shed light on what can be achieved in areas of limited statehood

through exogenous invasive efforts.

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 Other contributions to Governance without a State? and contributors to the

Political Economy of Anarchism take on this task of positive analysis. Conrad and

Stange in their chapter “Governance and Colonial Rule” argue that despite the state

building efforts of the colonizers “virtually all colonies” (p. 40) from the past can be

considered as areas of limited statehood. Although the consequences of colonial rule can

still be observed today, the colonizers’ ability to act as centralized authority was severely

limited. According to Conrad and Stange the colonial states were weak because only few

resources to rule were made available to them and the colonial rulers were not regarded

as legitimate by the indigenous population. The colonizers reacted by delegating powers

to local and regional indigenous leaders (pp. 47-48). Thereby the boundaries between

public and private actors among the colonizers as well as the indigenous elites were

blurred. The resulting systems of governance can be best described as one of competing

and overlapping authorities (pp. 49-51).

Similarly, Schneckener in his chapter “State Building or New Modes of

Governance? The Effects of International Involvement in Areas of Limited Statehood”

argues that state building implies multilevel, transnational, and nodal governance

structures that have been ignored by recently adopted state building strategies. Though

not to be found in their pure form, Schneckener differentiates four types of state building

strategies and sketches their drawbacks: (1) Liberalization First aims at establishing

political and economic liberties, but the “shock therapy” may have destabilizing effects

and the economic aspects commonly favor existing economic elites. (2) Security First

stresses the role of external state builders to provide physical security, but the approach

may merely cement the status quo. (3) According to the approach Institutionalization

First the establishment of effective and legitimate institutions on all levels from local to

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national is crucial for state building efforts. The drawback of this approach is that it tends

to favor existing privileged actors who may consolidate their power and support

institutions that foster their own interests. (4) The Civil Society First approach is based on

the assumption that a functioning state and its institutions can only grow from the

bottom-up. But strengthening civil society players may further undermine the fragile

state’s authority and identifying organizations that are part of civil society is difficult as,

for instance, NGOs can only to a very limited extent be considered to be genuine civil

society actors.

Schneckener argues that the four approaches ignore the multilevel interactions

between local players, between local and external players, and between various external

players ranging from NGOs over military organizations to the headquarters of

international organizations and nation states. Intended as well as unintended

consequences result on various levels from the interaction of these players. Schneckener

further argues that in response to the mostly unintended consequences new modes of

nodal and transnational governance structures evolve as the parties involved react to the

challenges they see themselves confronted with. Schneckener closes by calling for more

informed and “more focused” state building efforts that reduce the unintended

consequences and take the remaining unintended consequences into account. For

instance, the “international community could aim at reducing the complexity of the

multilevel architecture of most state-building undertakings by cutting down the number

of actors and levels involved” (p. 256).

In the chapter “Applying the Governance Concept to Areas of Limited Statehood:

Implications for International Foreign and Security Policy”, Brozus also gives advice on

how state building could be more successful. Primarily, Brozus provides a review of

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select publications predominantly from the disciplines of International Affairs and

Political Science that deal with topics of limited statehood. After a discussion of

practical and normative issues of state building, Brozus concludes that “governance

shaping” may prove more effective in strengthening governance structures in areas of

limited statehood than state building. He maintains that influencing existing local forms

of governance may be more promising than creating new institutions for areas of limited

statehood from scratch. Though also stressing the problem of unintended consequences

(pp. 270-274), Brozus does not discuss how “governance shaping” instead of state

building helps circumventing negative unintended consequences.

The problem of unintended and undesired consequences highlighted by

Schneckener and Brozus in their respective chapters is ever-present in Coyne’s work on

reconstruction efforts after military interventions (Coyne 2008a, 2008b, Cowen and

Coyne 2005, and Coyne and Boettke 2009). Similar to the three chapters by Conrad and

Stange, Schneckener, and Brozus of the edited volume, Coyne discusses problems faced

by state builders. Four of which are: First, coordination problems (Coyne 2008a, 32-39;

Cowen and Coyne 2005). Individuals have to have an incentive to take actions in accord

with the new institutions to attain coordination on an equilibrium that moves them closer

towards a liberal democratic order. Second, credible commitment problems (Coyne

2008a, 66-70; Coyne and Boettke 2009; Boettke 1993, 88-105). There is no party

available to enforce political agreements (Acemoglu 2003). It is therefore difficult for

those implementing institutional change to credibly commit to adhering to the new set of

rules (Coyne and Boettke 2009, 4-5). Third, problems with nested games (Coyne 2008a,

58-65). Foreign observers tend to focus on the meta-game and even if indigenous and

foreign state builders pay ample attention to the web of nested games, the question

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remains whether state builders organized in political bureaucracies are equipped to

provide satisfying solutions to nested games. This leads to, fourth, problems of

bureaucratic organization (Coyne 2008a, 97-100; Coyne 2008b). Whereas customers

provide private enterprises with a direct feedback via profits and losses, members of

bureaucracies cannot rely on any such tight feedback loop (Martin 2010). Instead of the

price mechanism, political decisions based on little relevant information determine the

allocation of resources within bureaucracies that have their own agendas (Coyne 2008a,

97-98; Coyne 2008b, 15-16).

Coyne builds his analysis of state building efforts on insights from public choice

and institutional economics. These insights lead him to a different conclusion than the

ones presented in the chapters by Schneckener and Brozus. Instead of wiser interventions

in weak, failed, and conflict-ridden states, Coyne regards a commitment by the western

world to a liberal policy of non-intervention and free trade vis-à-vis these states to be

more promising (Coyne 2008a, 181-193). In addition to the economic benefits of free

trade, Coyne stresses the cultural benefits of free trade. Trade enables individuals from

different backgrounds to get to know the other parties’ cultures and to exchange ideas.

This decentralized multilateral process may prove more effective at spreading the ideas

underlying a liberal democracy than explicit exogenous state building efforts.

4 Concluding remarks

Governance without a State? is complemented by one further chapter.

Enderlein, Daniels, and Trebesch in their chapter “Governance in Sovereign Debt Crises:

Analyzing Creditor-Debtor Interactions” provide a contribution to what can be regarded

as the study of international anarchy. They analyze the interaction of sovereign debtors

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of developing countries with their private creditors in times of debt crises. In a first step,

they document that governments rather than private creditors dominate the bargaining

process in case of a sovereign debt crisis. In a second step, Enderlein et al. attempt to

provide an explanation for the variation in the degree of uncooperative or “coercive”

behavior of the governments towards their private creditors. For this purpose they create

an Index of Government Coerciveness. Their quantitative analysis of 103 cases of debt

restructuring in 36 developing countries over the period from 1980 to 2005 indicates that

governments were less coercive towards their private creditors the better their regulatory

quality, the more the rule of law is respected, and the larger the government’s capacity to

implement policies effectively.

Raghuram Rajan (2004) suggests that insightful analyses of the institutional

circumstances in developing countries may require to initially assume that there may be

no institutions that enforce agreements and protect persons and property. Most of the

contributions to Governance without a State? pursue this approach and find that where

central enforcement authorities are absent, institutions that govern social interaction

nonetheless persist. The present edited volume further improves our understanding of

particular governance structures in areas of limited statehood. Moreover, highlighted

throughout are the severe constraints faced by those whose hubris leads them to

overestimate their ability to change the lives of people in developing countries by

engineering institutional change from the outside.

The economics literature on self-governance in the absence of a functioning state

is substantial. The contributors to Governance without a State? could possibly have

provided even more insight, had they built more explicitly on relevant elements of the

existing economic investigation of anarchy. However, Governance without a State? has

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the potential to serve as a model for social scientists from diverse backgrounds to join the

analysis of areas of limited statehood, also known as anarchy.

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