Myron’s Law

“Asymptotically, any finite tax code collects zero revenue”

This is what economist Paul Romer calls Myron’s Law (after Myron Scholes). It is a great aphorism as it illuminates a neglected source of institutional change – the opportunistic adaptation of the regulated actors to the rules which spurs transformations of the rules which leads to behavioral adaptation, ad infinitum. Usually, institutions are regarded as sticky, slow-moving and resilient to change. Which might be true for constitutions, but is easily disqualified when once looks beyond the fundamental ‘rules of the game’ into tax codes, the network of public organizations, the details of electoral systems and other lower-level institutions. Few seem to realize that these change all the time, and we have precious little theory to explain why. In fact, the degree of change is such that one wonders whether tax codes and the like qualify as institutions at all. In a way, they are like the proverbial river – always changing yet somehow remaining the same.

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