Organizations and Markets

5 Comments Add your own

• 1. JC  |  29 July 2006 at 10:07 am

  Do you have a couple of sentences on what these books cover? That would be appreciated by this blogee.

• 2. Peter Klein  |  29 July 2006 at 10:43 am

  Sure, all are about the volunatry, private production of public goods, including dispute resolution (Benson, Ellickson) and charitable assistance (Beito).

  If you’ll excluse some self-quotation (from my entry on the New Institutional Economics in the Encyclopedia of Law and Economics):

  [The New Institutional Economics] has been particularly interested in contract law (Llewellyn, 1931; Macneil, 1974, 1978; Langbein, 1987) and property law (Alchian, 1961; Demsetz, 1967; Furubotn and Pejovich, 1972, 1974; De Alessi, 1980; Barzel, 1989). However, unlike the ‘legal centralism’ tradition, which holds that disputes are primarily settled by the courts as official agents of the state, NIE often focuses on private solutions, holding that ‘in many instances the participants can devise more satisfactory solutions to their disputes than can professionals constrained to apply general rules on the basis of limited knowledge of the dispute’ (Galanter, 1981, p. 4). The recent studies on decentralized law and its evolution by Benson (1990), Ellickson (1991) and Cooter (1994), for example, are examples of this ‘private ordering’ tradition. . . .

  Ellickson (1991) explains that social norms, as ‘customary law’, can be superior to administrative or judicial dispute resolution among people with close social ties. Ellickson studied disputes between cattle ranchers and farmers in Shasta County, California and found that these disputes were usually resolved by appeal to generally accepted social rules, not by bargaining over legal rights (as the Coase Theorem would predict). ‘[M]embers of a close-knit group develop and maintain norms whose content serves to maximize the aggregate welfare that members obtain in their workaday affairs with one another’ (Ellickson, 1991, p. 167). That is, through repeated play, agents tend to converge on strategies of cooperation that improve joint well being. These strategies replace traditional legal remedies. ‘Law solves the problem of cooperation by altering the payoff structure in each game; relationships solve the problem by repeating the game. In Shasta County, where both solutions are available, relationships prevail over law’ (Cooter, 1993, p. 423). Informal norms, in these cases, replace law.

  Norms and law are not necessarily substitutes, however. Law can shape the outcome of private bargaining by serving as a backup mechanism for resolving disputes that cannot be resolved privately. If the alternative to private dispute resolution is resolution in court, then the expected outcome at trial determines the parties’ ‘threat values’ in bargaining. Bargaining typically takes place ‘in the shadow of the law’ (Cooter, Marks and Mnookin, 1982). Moreover, norms can help shape the law, if judges look to social norms as guidelines for legal decisions. The traditional account of the medieval law merchant illustrates this phenomenon. During the commercial revolution merchants developed a system of private courts to resolve disputes among themselves. The rules of these courts became general merchant practice, enforced by the threat of ostracism. As the English legal system developed, judges began to hear commercial disputes once handled privately. In resolving these disputes, English common-law judges tended to enforce the merchant customs already in place. In this way the common law came to embody the principles that already existed, principles developed through private interaction among merchants. (On the law merchant see Trakman, 1983 and Benson, 1989). Today, many commercial disputes are resolved privately, through organizations such as the VISA Arbitration Committee (Solove, 1986; Cooter, 1994).

• 3. JC  |  1 August 2006 at 11:26 am

  Many thanks Peter. Are you familiar with:

  Greif, A. (2006). Institutions and the Path to the Modern Economy: Lessons from Medieval Trade. New York: Cambridge University Press.

• 4. Peter Klein  |  2 August 2006 at 8:31 am

  JC, I haven’t looked at Greif’s new book, but am familiar with his papers on the Maghribi traders, which I would put in this category as well.

• 5. JC  |  2 August 2006 at 9:18 pm

  I guess it’s the long version. …

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