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On the Evolution of Collective Enforcement Institutions: Communities and Courts

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  • Prüfer, J.

    (Tilburg University, Tilburg Law and Economics Center)

Abstract

Impersonal exchange has been a major driver of economic development. But transactors with no stake in maintaining an ongoing relationship have little incentive to honor deals. Therefore, all economies have developed institutions to support honest trade and realize the gains of impersonal exchange. We analyze the relative capacities of communities (or social networks) and courts to secure cooperation among heterogeneous, impersonal transactors. Our main finding is that communities and courts are complements: They support cooperation in different types of transactions. We apply our results to the rise and fall of a medieval enforcement institution, the Law Merchant, concluding that progressive reductions in the risks and costs of transportation over long distances, driven in part by improvements in shipbuilding methods, increased first the value and then the composition of long-distance trade in ways that initially favored and later undermined this institution.

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Bibliographic Info

Paper provided by Tilburg University, Tilburg Law and Economic Center in its series Discussion Paper with number 2011-017.

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Date of creation: 2011
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Handle: RePEc:dgr:kubtil:2011017

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Web page: http://www.tilburguniversity.nl/tilec/

Related research

Keywords: Institutions; Contract Enforcement; Communities; Courts; Social Networks; Law Merchant; Lex Mercatoria; Commercial Revolution.;

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References

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  13. Reyerson, Kathryn, 2006. "Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. By Avner Greif. Cambridge: Cambridge University Press, 2006. Pp. xix, 503. $34.99, paper," The Journal of Economic History, Cambridge University Press, vol. 66(04), pages 1080-1081, December.
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  17. Hermalin, Benjamin E. & Katz, Avery W. & Craswell, Richard, 2007. "Contract Law," Handbook of Law and Economics, Elsevier.
  18. Weingast, Barry R & Marshall, William J, 1988. "The Industrial Organization of Congress; or, Why Legislatures, Like Firms, Are Not Organized as Markets," Journal of Political Economy, University of Chicago Press, vol. 96(1), pages 132-63, February.
  19. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
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Cited by:
  1. Prüfer, J., 2012. "Business Associations and Private Ordering," Discussion Paper 2012-011, Tilburg University, Tilburg Law and Economic Center.
  2. Skarbek, David, 2012. "Prison gangs, norms, and organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 96-109.

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