Government By Contract

Abstract

Many organizations have characteristics that normally are associated with govern-ments, but which are created by private contract. Neighborhood associations and condominium associations are examples. These organizations often provide public goods, have the power to tax their members, and are governed democratically. They tend to be created by an entrepreneur who creates a contractual government and then sells shares in the government along with property ownership, with the expectation that the contractual government increases the value of the associated property. Property value is enhanced because the entrepreneur produces constitutional rules, which allows subsequent purchasers to avoid the decision-making costs inherent in reaching agreement at the constitutional level.