Private enforcement institutions restore cooperation but impose priced transaction costs.

Evidence

Theorem 3 shows that the LM system restores cooperation even when the players know little about their partners’ histories. There are transaction costs necessary to maintain this system, however: That the average payoff per period is 1 - Q reflects the transaction cost of Q per period incurred by each trader to support the Law Merchant system. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 125

Categorization

• XREF: connects to: A private cartel’s monitoring substitutes for institutional trust and underwrites credit access. — Lisa Bernestein, Opting out of the Legal System, 25; Private arbitration systems reduce cross-border transaction costs among traders. — Lisa Bernestein, Opting out of the Legal System, 247; A private judge can solve collective punishment problems by centralizing information and adjudication. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 79 (+9 more)

Related

• Private arbitration systems reduce cross-border transaction costs among traders. (similarity 0.85)
• Social homogeneity lowers the cost of private monitoring within trading groups. (similarity 0.84)
• Private trade-enforcement systems fail when wealth transfer is costly (similarity 0.82)
• Some enforcement costs are unavoidable for sustaining honest exchange. (similarity 0.82)
• Private-judge trading systems succeed only when enforcement costs stay low (similarity 0.82)
• Cooperation can survive even when cheating pays seven times more per round. (similarity 0.79)
• A private judge can solve collective punishment problems by centralizing information and adjudication. (similarity 0.78)

Broader Connections

• Private-judge trading systems succeed only when enforcement costs stay low #qualifies (0.85) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 15
• Private judges bundle self-interested services with community-benefiting enforcement #expands (0.85) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 16
• Private arbitration can effectively substitute for courts #expands (0.80) — Lisa Bernestein, Opting out of the Legal System, 40
• Community reputational enforcement works even without repeated bilateral interaction between traders. #expands (0.78) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 65
• Social homogeneity lowers the cost of private monitoring within trading groups. #expands (0.75)
• Institutions can mimic encapsulated-interest incentives to substitute for ongoing relationships. #expands (0.75)
• Competitive pricing minimizes trust demands while cartels create them intensely #complicates (0.72)