Opacity erodes informal enforcement mechanisms as external legal pressure reshapes insider norms.
Evidence
The Rapaport controversy has made the club much more reluctant to expel membersit is concerned not only about the expelled member bringing suit, but it also fears that too many expulsions will revive the Federal Trade Commission’s interest in its activities. At present, a member is not expelled until the Board of Arbitrators first obtains a court order affirming its decision. Effective sanctions may still remain, however, since the member’s picture, along with a description of the judgment that he refused to pay will still be hung in the club room and on the trading floor of every bourse in the world federation. … Although the DDC bylaws have always given the litigants the right to be represented by a lawyer, prior to the Rapaport case it was uncommon. Today, legal representation is the norm. The arbitrators feel that the presence of lawyers has, in some measure, altered the rules of decision they apply. The lawyers alert them to relevant parts of New York law, and, while this law still does not supply the rule of decision, the arbitrators are more conscious of the law and are increasingly reluctant to drastically depart from it, except in instances where the decisions are deeply rooted in custom or do not involve creating a new rule. — Lisa Bernestein, Opting out of the Legal System, 280
Categorization
- XREF: Connects to the broader literature on legal endogeneity and how exposure to formal law changes informal dispute resolution — parallels Bernstein’s own work on relational contracting and Vai Lambsdorff on corruption systems. — connects to: Secrecy norms drive the bourse to prefer extralegal agreements over enforceable contracts.; Law changes norms even when it never produces prosecutions — , The Rod and the Child: A Global History…, 7224; Legal prohibition causes attitudinal change rather than merely reflecting it — , The Rod and the Child: A Global History…, 10919 (+5 more)
- QUESTION: The reputational sanction via hanging photos on trading floors is a vivid mechanism — worth investigating how the physical centrality of the ‘wall of shame’ does work a formal expulsion cannot.
Related
- Secrecy norms drive the bourse to prefer extralegal agreements over enforceable contracts. (similarity 0.81)
Broader Connections
- Legal prohibition causes attitudinal change rather than merely reflecting it
#corroborates(0.85) — , The Rod and the Child, 10919 - Law changes norms even when it never produces prosecutions
#corroborates(0.82) — , The Rod and the Child, 7224 - Legal prohibition shifts normalcy even for those who still practice the behavior
#corroborates(0.80) — , The Rod and the Child, 7963 - External surveillance becomes internalized as self-imposed bodily discipline
#exemplifies(0.78) — , Selod, Saher - Forever Suspect_…, 512 - Sustained commitment usually depends on external social institutions for enforcement.
#corroborates(0.75) - Private enforcement can perversely suppress self-policing among market participants.
#complicates(0.72)