>here’s zero national economic gain from _any_ variation in law from state to state
Yes there is. States compete with each other and this prevents any one of them from having laws that are much crappier and more oppressive than average because when that happens businesses and people leave.
So competition might prevent one of many downsides to different states having different laws? I don't see why this means there's any benefit to that situation over just having one set of laws?
The model [1] GP alludes to claims that competition forces small governments to provide better (more efficient, more optimally chosen, etc) local services than monopoly governments, for the same reasons that competitive companies are expected to provide better services at a lower price.
Yes there is. States compete with each other and this prevents any one of them from having laws that are much crappier and more oppressive than average because when that happens businesses and people leave.