In analyzing political processes, public choice scholars invoke a two-level choice, choices within rules and constitutional choices among sets of rules. This paper considers rules that set the limits for market choice through the political-collective action. Three familiar categories of institutional constraints are examined: prohibition, regulation, and taxation-public spending, that are significant in limiting the trading process. The motivation for institutional-constitutional construction may originate from sources other than economic objectives. We note that institutional parameters include political and legal constraints, as supplemented by traditions and conventions which may affect choice behavior. We relate the analysis to Adam Smith's vision of the achievement of natural liberty and economic progress through his theorem that economic productivity depends on market size. Copyright 2008 The Authors.
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Article provided by Blackwell Publishing in its journal Kyklos.