A form of government organization from the perspective of transaction cost economics

Abstract

Taking the approach of the superfirm, we characterize government organization through six different features. First, citizens are viewed as sovereign owners of a superfirm; elected officials are employees of the sovereign citizens. Second, in analogy to the economic principle of the division of labor and specialization, a division of labor between five independent branches of government is advocated: the legislative, the budgetary, the executive, the law enforcement, and the judiciary branch. Third, we do not suggest a mechanism of checks and balances between government branches but deal with the threat of tyranny using the principle of separation of decision control and decision management developed by Eugene Fama and Michael Jensen. Fourth, with election as a decision control device, we demarcate the constituency of the budgetary branch by age groups to provide an explicit control mechanism for intertemporal and intergenerational trades. Fifth, to strengthen sovereign citizens' decision control, the powers to recall elected chief public servants, to declare emergency and war, to sign into international treaties, and to amend the constitution are vested with a national assembly. Sixth, there is no head of state.