Economic Foundations of the Territorial State System
The contemporary world is organized into a system of territorial states in which
rulers exercise authority inside clearly dened boundaries and recognize the author-
ity of other rulers outside those boundaries. We develop a model to explain how the
major economic and military developments in Europe starting in the 15th century
contributed to the development of this system. Our model rationalizes the system
as an economic cartel in which self-interested and forward-looking rulers maintain
high tax revenues by reducing competition in the \market for governance."