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🪵 The Threshold

Disputed quality enforcement ends with exit rather than arbitration

Properties2
tagsja-picks, definitional_content, singleton, xref, category/causal-relationships
aliases@gambetta_sicilian_1993, loc. 15

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Disputed quality enforcement ends with exit rather than arbitration

Evidence

So the system of private judges is designed to promote private resolution of disputes and otherwise to transmitjusr enough information to the right people in the right circumstances to enable the reputation mechanism to function effectively for enforcement. In order to succeed, such a system must solve a number of interconnected incentive problems: Individual members of the community must be induced to behave honestly, to boycott those who have behaved dishonestly, to keep informed about who has been dishonest, to provide evidence against those who have cheated, and to honor the decisions of the judges. All of these problems can be resolved by the system if certain institutional constraints are satisfied, as we show in section 3. Briefly, the costs of making queries, providing evidence, adjudicating disputes, and making transfer payments must not be too high relative to the frequency and profitability of trade if the system is to function successfully. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 15 (#expands, via linked claim)

We now consider in more detail a model of trade in which outsiders cannot readily observe what has transpired in a given bilateral trade. While “disputes” may arise in which one party accuses the other of cheating, none of the other players have a method of freely verifying the parties’ claims. Even if the dispute itself can be observed by others, they cannot costlessly determine whether cheating by one has actually occurred or whether the other is opportunistically claiming that it did. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 68 (#qualifies, via linked claim)

Categorization

  • XREF: connects to: Credit clientelism removes the exit option that bargaining requires; Recovering stolen property is analytically equivalent to dispute settlement enforcement; Observable disputes in trade cannot be resolved without verification of the underlying claims — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 68 (+1 more)

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