Review of Austrian Economics, 12: 175–200 (1999)
1999 Kluwer Academic Publishers
Entry Barriers in Politics, or: Why Politics, Like
Natural Monopoly, Is Not Organised as an Ongoing
Max-Planck-Institute for Research into Economic Systems, Institutional Economics Unit, Kahlaische Strasse 10,
D-07745 Jena, Germany
Abstract. In the paper “Entry Barriers in Politics, or: Why Politics, Like Natural Monopoly, Is Not Organised
as an Ongoing Market-Process,” an analytical framework for dealing with processes of political competition is
presented. The idea goes back to Tullock’s model of democracy as franchise-bidding for natural monopoly. To this,
basic insights of New Institutional Economics and Austrian Ecomomics are added. It is shown that incomplete
contracts which arise in economic bidding schemes, characterise political competition. At the same time, they
create leeway for political entrepreneurship. The same is true for various barriers to entry in politics. These
barriers affect a trade-off between political stability and contestability which is discussed in view of incentives
and opportunities for politicians to engage in positive-sum, long-term investments in political reforms.
JEL Classiﬁcation: D72, D78, L10.
In 1965, Gordon Tullock published a short paper on “Entry Barriers in Politics” in which he
sketches a theoryof democracy basedon the analogy of anauction mechanism for allocating
rights to a natural monopoly. In this paper, Tullock not only anticipates the famous proposal
for dealing with natural monopoly made by Harold Demsetz (1968), but he also presents
a model which is quite suitable for analysing processes of political competition under
democratic rules of the game. And yet, Tullock’s basic idea has remained largely neglected
within the economics of politics.
It is the main intention of the present paper to show that Tullock’s basic view of po-
litical competition as a process of bidding for political monopoly can be usefully ap-
plied and further substantiated in order to highlight and discuss elementary aspects of
democratic systems. The model of democracy as a franchise bidding scheme and a closer
look at a variety of barriers to entry in politics readily discloses why politics, like natural
monopoly, is not organised as an ongoing market process. The title of our paper alludes to
Weingast and Marshall’s “The Industrial Organisation of Congress; or, Why Legislatures,
I gratefully acknowledge comments and suggestions on an earlier version of major parts of this paper from
Ivan Baron Adamovich, Harold Demsetz, Thr´ainn Eggertsson, Uwe and Annette Mummert, Dennis C. Mueller,
Werner Mussler, Thomas Ulen, Gordon Tullock and Stefan Voigt. I also thank two anonymous referees for helpful
suggestions. The usual disclaimer applies.