Division of Labor, Specialization and the Enforcement of a System of Property Rights: A General Equilibrium Analysis

This paper uses a model of endogenous theft and endogenous network division of labour to formalise some of the main principles of the economics of the state and to explore related issues why new constitutional rules emerge and evolve. First, we develop a two good consumer-producer model with endogenous specialization and endogenous stealing. Following this we introduce a Sovereign's decision to collect tax and to allocate tax revenue between her consumption and enforcement of property rights into the model. Finally, we use this framework to examine trade-offs between the positive effects of third party property rights protection, and the negative effects of taxation, on the division of labour. We illustrate our results using the growth of the states' system in Western Europe.