The Economics of Autocracy and Majority Rule: The Invisible Hand and the Use of Force

If the leader of a bandit gang in an anarchy can hold a territory, he gains from becoming a public-good-providing autocrat. His monopoly over crime gives him an "encompassing" stake in the productivity of his domain that limits his tax-theft and makes him pay for public goods. We prove that a democracy run by an optimizing majority earning incomes in the market necessarily redistributes less than an autocrat and that a majority that earns a sufficient fraction of market income to be a "super-encompassing" interest redistributes no income and provides an ideal level of public goods.