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The Elgar Companion to Law and Economics, Second Edition

Edited by Jürgen G. Backhaus

This thoroughly updated and revised edition of a popular and authoritative reference work introduces the reader to the major concepts and leading contributors in the field of law and economics. The Companion features accessible, informative and provocative entries on all the significant issues, and breaks new ground by bringing together widely dispersed yet theoretically congruent ideas.
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Chapter 12: Constitutional Economics I

Francesco Farina


Francesco Farina Introduction While constitutional economics has to be traced back to the studies on politics 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 cooperation, 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 discover that their goals are more efficiently pursued by a coordination strategy based either on the imposition of a moral constraint to...

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