In this paper prepared for the Miller Upton Forum on the Wealth and Well-Being of Nations, we examine the polycentric system of governance that has emerged among gangs in California to fill the void created by inoperative, centralized government. Formal government’s inability or unwillingness to define and enforce property rights, resolve disputes, and lessen negative externalities among drug dealers creates long-term demand for governance that is supplied by prison gangs. This context furthers our understanding of how robust self-governance institutions emerge without congruent institutions, minimal recognition of rights by government, and formal conflict resolution mechanisms. It is argued that innovative entrepreneurs can overcome these institutional design failures, although their absence provides potential sources of conflict with disastrous and unlikely consequences.
Find the article at SSRN.