A breakdown in the efficiency of competitive market processes may create a prima facie case for hierarchy. Since a social dilemma exists when individual self-interest leads to inefficient outcomes, efficiency would seem to require a mechanism capable of coercing individuals to do what they would otherwise have no incentive to do.

But is hierarchy really necessary to escape social inefficiency? Why can't the individuals facing a social dilemma agree among themselves on the course of action necessary and voluntarily commit themselves to a mutually binding legal contract that would resolve the dilemma? A voluntary contract such as this would simply represent an extension of the voluntaristic market mechanism. Just as a private exchange contract commits a buyer and a seller to give up assets in return for considerations defined in the contract, a public goods contract could commit two parties in a public goods dilemma to contribute to the purchase of a public good in return for the benefits of other parties' contributions.

Indeed, a relatively nonhierarchical form of contractual coordination called “inside contracting” prevailed in many large-scale industries at the turn of the century.