Markets, Coercion and the Choices People Make Before Trading

Two institutions, one economic question

What changes when people exchange voluntarily rather than face demands backed by force? A November 2026 theoretical preprint by Juan Carlos Carbajal, Marcelo Gallardo and Cesar Martinelli asks how those rules affect both resource allocation and occupational choices. Its results are mathematical comparisons within a model, not empirical estimates of how actual societies would respond to institutional reform.

The authors contrast a market, supported by public enforcement of property rights and contracts, with what they call a “jungle”: an economy organized through a hierarchy of coercive power. The comparison is not between markets and an absence of order. Both systems coordinate economic activity, but they enforce transactions differently.

Choosing work before knowing the outcome

People in the model act as both consumers and producers. An occupation determines their valuation of goods and services and the trades they can undertake. Occupational choice therefore means more than selecting a job title: it can alter production possibilities, consumption preferences or both.

In the market, individuals choose trades at prices and make enforceable monetary payments. In the jungle, stronger individuals can impose trades on weaker ones without monetary compensation. The analyzed allocation procedure lets the strongest individual maximize her payoff first, then the next strongest, while preserving the payoffs already secured by those above her.

People choose occupations before the jungle hierarchy is drawn. Every ordering is equally likely, independently of occupational choices. Nobody invests in becoming more powerful. An occupational equilibrium is a situation in which nobody can improve their market payoff, or expected jungle payoff, by changing occupation alone.

Why efficiency has two meanings

Holding occupations fixed, the market maximizes aggregate surplus: the sum of individuals’ valuations. Monetary payments cancel when payoffs are added across the economy.

The jungle allocations selected by the hierarchical procedure satisfy a narrower efficiency criterion. With monetary holdings fixed, there is no feasible rearrangement that benefits someone without harming anyone else. This is Pareto efficiency, but it does not necessarily maximize total surplus.

The distinction matters because compensation can make an otherwise unattractive rearrangement acceptable. A powerful individual may secure her preferred outcome even when another allocation would generate greater total value. Without monetary transfers, the jungle has no mechanism to compensate her for accepting that alternative.

Thus, at the same occupational profile, aggregate market payoffs are at least as high as expected aggregate jungle payoffs. Equality is possible, including when everyone’s preferred trade can be achieved simultaneously. Strict superiority requires additional conditions; scarcity alone is not the paper’s general test. Nor does a higher aggregate payoff establish that every individual prefers the market.

Occupational choices complicate the comparison

Institutions also change which occupations people select. Showing that markets allocate resources better at any fixed profile does not automatically establish that their equilibrium occupational choices produce a better overall outcome.

The authors identify two requirements for the broader aggregate advantage: occupations available in the jungle must also be accessible in the market, and the market equilibrium must be perfectly competitive in a particularly strong sense. The formal comparison uses the same population and identical occupational menus under both institutions.

Here, perfect competition means that no individual can change the selected equilibrium prices by unilaterally switching occupations. Taking prices as given while trading is not enough. Under this condition, the market occupational equilibrium maximizes aggregate surplus across occupational profiles and therefore weakly outperforms the jungle equilibrium.

Without that condition, the profile-by-profile ranking does not settle the equilibrium ranking. The paper separates losses associated with occupational choices from those associated with jungle allocation. A sufficiently large market occupational loss could reverse the aggregate comparison.

A separate result for identical people

A stronger individual-level conclusion holds in a restricted setting. If everyone has identical preferences, occupational menus and feasible trades, everyone weakly prefers any market occupational equilibrium to a symmetric jungle occupational equilibrium, where all choose the same occupation. This result does not require occupational price invariance.

The protection comes partly from the ability to choose zero trade voluntarily. Under the symmetry assumptions, concavity limits the expected benefit of random coercive allocations relative to that option.

What the model leaves open

Equilibrium existence itself requires additional mathematical conditions; stable occupational choices are not automatic. The model also treats coercion as costless and uses preferences in which money enters utility additively. Its main comparisons do not solve who joins which institution: endogenous participation and coexistence remain an extension.

The preprint’s contribution is therefore conditional, not a universal institutional ranking. It shows why compensation, access to occupations and limits on price influence must be considered together when comparing voluntary exchange with coercive economic order.