Business Associations and Private Ordering

Abstract: We study the capacity of business associations - private, formal, noncommercial organizations designed to promote the common business interests of their members - to support contract enforcement and collective action. Inspired by recent empirical literature, our theoretical framework connects the organizational and institutional features of formal and informal business organization with socioeconomic distance. We show how associations provide value to their members even if members are already embedded in social networks, and which players join an association. We propose explanations for empirical puzzles, put forward novel testable hypotheses, and relate business associations to alternative private ordering institutions.