Revisiting the Maghribi Traders (again): a Social Network and Relational Contracting Perspective

Abstract : Avner Greif’s study of trade among the Maghribi Jewish merchants across the Islamic Mediterranean in the Eleventh Centaury is a seminal work in the literature on Private Ordering. Yet in recent years his study has come under attack from other historians of the Geniza who point to facts that they view as undermining his theory of coalition-based reputation-governed trade. This essay suggests that the work-a-day actions of merchants captured by the formal multilateral governance forces at work in Greif’s model can also be understood through the lens of social network analysis. Viewing the Maghribi coalition as a bridge and cluster network, and incorporating insights from relational contract theory, suggests that the facts identified by Greif’s critics do not undermine his central insight, namely that a reputation-based community enforcement system played a core role in supporting trade. More broadly, the network perspective provided here enriches Grief’s model by highlighting a somewhat relaxed set of preconditions that can also effectively support multilateral reputation-based trade. Identifying these preconditions may be helpful to scholars and policy makers interested in drawing on Greif’s work and other case studies of private contractual ordering to better understand the promise of private rules, norms, and institutions to support trade in developing or transition economies as well as in countries with well-functioning legal systems.

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Identifying the Mechanisms of Extralegal Enforcement

Abstract : This paper studies the mechanisms by which a community enforces contracts absent a formal legal authority. While many studies of self-ordering and extralegal contracting focus on rule selection, there has been less focus on rule enforcement. Various mechanisms have been proposed, but there has been little quantitative analysis of whether these mechanisms are actually active and what this implies about the robustness of the community. Drawing on a unique dataset of anonymous and unsecured online peer-to-peer loans, this paper shows that forward-looking economic self-interest is primarily responsible for facilitating repayment. Social ties play an important but replaceable role as a costly signal and do little to directly motivate repayment. The results show that the combination of repeat play, a reliable information transmission mechanism, and costly entry is sufficient for effective extralegal enforcement.

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Clash of Classification Institutions

Abstract : Classification institutions - such as social norms, cultural traditions, laws, or regulations - assign a normative label, acceptable or wrongful, to human behavior. Thereby they shape the expectations about other people’s behavior, reduce uncertainty, and create trust in other’s actions. What if two classification institutions do not conform, for instance, because a country with established norms is colonized and new laws are imposed? We construct a dynamic model where social norms clash with legal order. We show when and how norms decay gradually, where more and more players first stop enforcing and then stop complying with the norm as time proceeds. We also show that the existence of legal order can undermine norms, even if legal order cannot enforce its own laws very effectively. In such a case, players may rationally ignore the classification of both norms and laws and engage in novel behavior, implying the breakdown of both governance mechanisms.

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