On the Evolution of Collective Enforcement Institutions: Communities and Courts

S.E. Masten, J. Prüfer

Research output: Working paperDiscussion paperOther research output

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.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Volume2011-017
Publication statusPublished - 2011

Publication series

NameTILEC Discussion Paper
Volume2011-017

Keywords

  • Institutions
  • Contract Enforcement
  • Communities
  • Courts
  • Social Networks
  • Law Merchant
  • Lex Mercatoria
  • Commercial Revolution.

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