Digital Mind 🧠

🪵 The Threshold

Network-based markets suffer free-riding when outsiders exploit customs without bearing membership costs.

Properties2
tagsja-picks, xref, causal_relationships, primary_study, singleton, category/causal-relationships
aliases@bernstein_opting_1992, loc. 208

2 min read

Network-based markets suffer free-riding when outsiders exploit customs without bearing membership costs.

Evidence

In general, the world federation’s drive to create new bourses has succeeded in combating an additional problem associated with markets based on social networks among homogeneous groups, namely, that “these markets may become unstable because of free-riding potential, as outlying transactors may adopt the customs of the markets without bearing the costs of membership.” … Although it may be true that, in the long run, “markets based upon social networks are unlikely to sustain themselves in the face of alternative markets based on sophisticated and potentially more extensive information systems,"" the diamond industry is currently in a state of transition; it has succeeded, at least for the time being, in creating a system that is designed to capture the benefits of both monitoring by small social groups (individual bourses) and monitoring achieved through information intermediaries (institutions such as the world federation and brokers). — Lisa Bernestein, Opting out of the Legal System, 208

Categorization

  • XREF: Directly relevant to the reader’s stated purpose: free-riding outsiders weaken homogeneous-network markets, complementing Coleman’s closure theory and the Sicilian piazza dynamic. — connects to: Protection markets depend on pre-existing networks and cannot be exported at will; Long-distance trade undermines honest behavior among strangers without institutions. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 66; Large collectivities cannot be trusted because free riding overrides shared interests (+1 more)

Broader Connections

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