ABSTRACT
This chapter considers the conditions under which the private provision of law enforcement services can overcome public goods and "free-rider" problems. It examines whether a system of private protection agencies would evolve into government. The same conditions that allow private agencies potentially to overcome public goods problems also imply that these agencies will collude successfully. The chapter focuses on the possibility that anarchy would evolve into government because individuals prefer to participate in a common legal system. It analyzes the behavior of private protection agencies when a single firm or dominant adjudication network is present. The chapter presents some reasons why a cartel of private protection agencies is likely to prove more stable than most private cartels, which have historically demonstrated instability. Economic forces may also encourage the consolidation of competing agencies either through conquest or simply because citizens of a territorial area join the strongest agency in that area.
