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Polycentric Sovereignty: The Medieval Constitution, Governance Quality, and the Wealth of Nations

We extend the theory of market-preserving federalism by ascertaining under what conditions it is likely to prevail. We argue that political-economic systems characterized by polycentric sovereignty — a self-enforcing structure of political property rights that links governance rights with governance revenues, and affords holders of political property rights a check on potentially predatory behavior — will promote market-preserving federalism. We show how the estates system of Medieval Europe was an example of polycentric sovereignty. We also show how the 17th Amendment to the U.S. Constitution represented a degradation of polycentric sovereignty. We conclude by discussing the relationship between governance systems characterized by polycentric sovereignty and social wealth creation, arguing that the structure of political property rights in a governance system is an important characteristic that has hitherto been neglected.