In the Aretaevian ideal world, the state has withered away, there is NO top-down law, no police, and folks buy home protection from burglar alarm companies (like friends have reported they did in North Houston in the 80s? They also reported a major drop in quality of service when the police department formed). Of course, like a good Hayekian, I don't know any more than the formalists or Marxists do whether my ideal world is possible. I've certainly never seen it.
What is my 2nd best choice...if I can't have Anarcho-freed-markets.
Aside: You'll notice I've adopted the Left-libertarian affect of saying freed markets, implying future-tense rather than anything like the fascist/crony-capitalist state of Bush and Obama.
My second choice is small states with relatively free movement between states. At teh core of my political thinking, I claim that it's game theory all the way down. If there are LOTS of small states, with free motion between, then the states are in competition with one another ... and the states have to satisfy the citizenry. The actual structure of the state is irrelevant because the state has the right incentives (it's real power in population increases as it's policies improve). Alternatively, in a world without relatively free movement between states, and/or few states, the incentives are all screwed up (milk the citizens), and regardless the structure of the state, the citizens are guaranteed to be screwed over time.
There is only one political issue: how do you align the incentives of the state with the incentives of the citizen. There is also ONLY one answer: make it relatively easy for a citizen to leave one state, and move to a better one. In the US...the only solution that COULD solve our problems, is radical federalism, the near abolishment of the federal government, and maybe also disintegrating into 300 county-states, of 1m people each.