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Institutions help to build and extend civic capacity: the common knowledge, behaviors, networks, and norms that define a society. Some institutions promote a civic capacity that supports other kinds of institutions—-they create positive spillovers. We explore the interplay between three types of institutions: democracies, hierarchies, and markets, and in so doing, expose the downside of generating positive spillovers: it makes the externality-generating institution less likely to survive. We demonstrate that under plausible assumptions characterizing each, democracy is imperiled as its contribution to civic capacity grows. The model provides a fresh perspective on the cause of democratic decline, where democracy is threatened not by forces acting within the institution, but because of its contribution to other institutions that organize society.
