Reputation-based screening fails once market scale exceeds kinship and local-monitoring capacity.

Evidence

The pirating of protection rights becomes increasingly problematic as the number of transactions in the protection market increases. If all parties to such transactions are relatives, or if the community is so small that every movement can be monitored, the problem evaporates. (If Palizzi were a large city rather than a simple village, no matter how much someone asked around, not many people would know who the “friends” were.) The existence of a rule governing introductions suggests that the scale of mafia activity has exceeded that critical point at which the traditional mixture of kinship, friendship, and local intelligence suffices. — Diego Gambetta, The Sicilian Mafia The Business of…, 327

Categorization

• XREF: Direct parallel to Milgrom et al.: markets growing past small-community monitoring raise transaction costs and demand formal institutions — here the introduction rule stands in for the private judge.