The Origin of the State: Incentive Compatible Extraction under Environmental Circumscription

Abstract

Theories of early state formation posit that the state enabled an emerging elite to extract resources in exchange for protection from outside groups. This paper formalizes and empirically evaluates these forces in a unified framework. The model shows that extraction is closely linked to the idea of environmental circumscription: only if outside options are sufficiently poor for potential extractees, (a) they are willing to accept extraction, and (b) extractors consider extraction capacity a worthwhile investment. In a global dataset of archaeological sites on a grid with 184,523 cells, we then show that circumscription is strongly associated with the location of early states, using the intersection of large rivers through arid regions as an instrument. Our estimates suggest that extraction was more important in the Old World civilizations of Egypt and China while other motives such as protection were more important in the New World.