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Farina, Francesco --- "Constitutional Economics I" [2005] ELECD 136; in Backhaus, G. Jürgen (ed), "The Elgar Companion to Law and Economics, Second Edition" (Edward Elgar Publishing, 2005)

Book Title: The Elgar Companion to Law and Economics, Second Edition

Editor(s): Backhaus, G. Jürgen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781845420321

Section: Chapter 12

Section Title: Constitutional Economics I

Author(s): Farina, Francesco

Number of pages: 39

Extract:

12 Constitutional economics I
Francesco Farina


Introduction
While constitutional economics has to be traced back to the studies on poli-
tics by the Greek philosophers ­ first of all, Plato and Aristotle ­ the economic
analysis of the constitutional themes has flourished since the seventeenth
century. Thomas Hobbes argued that in the state of nature, individuals are
compelled to agree on relinquishing their individual rights to a sovereign, so
as to avoid the worst collective outcome of mutual defection from coopera-
tion, due to the individual rationality of a free-riding strategy. Many political
philosophers and economists ­ among them John Locke (1740 [1988]) and
Adam Smith (1759 [1976]; 1776 [1976]) ­ contended his view by claiming
that the state of nature is not always a war of all against all. Cooperation may
arise inside a society without being imposed by an absolute power. Inside this
line of thought, the names of Immanuel Kant and David Hume can be
associated with the notions of empathy and reciprocity, respectively. In Kant,
trust is founded on the coincidence of morality (the right of every individual
to be treated fairly by everyone else) and rationality (the individual is rational
when he/she impartially applies the universal law of fair treatment). In Hume,
trust is founded solely on self-interested rationality, which drives individuals
to find their advantage in reciprocity as a stable behaviour (Hume, 1740
[1978]). Especially in repeated social interactions, rational individuals dis-
cover that their goals are more efficiently pursued by a coordination strategy
based ...