The political economy of exit protection

Abstract Existing theories explain how exit disciplines governments but generally treat citizens’ ability to relocate as an institutional primitive. This paper instead endogenizes exit protection by modeling jurisdictions that first choose whether to preserve or eliminate mobility before competing through extraction. Although preserving exit uniquely maximizes investment and social welfare, it is not self-enforcing because jurisdictions can profit by creating captive populations. Exit protection is therefore institutionally fragile. The paper then evaluates alternative constitutional architectures capable of addressing this incentive problem and develops one formally. The analysis identifies a benchmark constitutional architecture under which decentralized political orders could, in principle, sustain exit without relying on hierarchical enforcement, repeated interaction, or citizen coercive power.