Word-of-mouth reputation alone cannot sustain honest trade.

Evidence

Another part of the inspiration for our formal model is the system of notaries that was widely used to register the existence of certain types of contracts and obligations. Typically, notaries were used for long-term contracts such as those for apprenticeships, sales of land, and partnerships (Lopez and Raymond, 1955). The extensive use of notaries in certain areas to register agreements suggests that reputation via word of mouth alone was insufficient to support honest behavior and that a third party without any binding authority to enforce obligations was nonetheless quite valuable for promoting honest exchange. — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 38

Categorization

• XREF: Connects directly to Milgrom-North-Weingast private judges: a third party with no enforcement power still sustains cooperation — exactly the ‘private order enforcement without the state’ mechanism in the reading purpose. — connects to: Reputation alone cannot sustain honest trading without third-party registration.; Trustworthiness cannot be communicated as objective market information. — Lisa Bernestein, Opting out of the Legal System, 135; Without legal enforcement or reputation audiences, some bargains become impossible — Thomas C. Schelling, The Strategy of Conflict, 115 (+6 more)
• DEEPTHINKING: The insight that a third party with zero coercive authority is nonetheless valuable for honesty is a counterintuitive core claim that drives the whole institutional-intermediation literature.

Broader Connections

• Reputation alone cannot sustain honest trading without third-party registration. #corroborates (0.95)
• Long-distance trade undermines honest behavior among strangers without institutions. #corroborates (0.90) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 66
• Long-distance trade needs institutions to fill knowledge gaps about others’ honesty #corroborates (0.90)
• Without legal enforcement or reputation audiences, some bargains become impossible #corroborates (0.85) — Thomas C. Schelling, The Strategy of Conflict, 115
• Bilateral reputation systems fail because information and sanctioning are costly public goods #expands (0.85) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 78
• Trustworthiness cannot be communicated as objective market information. #expands (0.80) — Lisa Bernestein, Opting out of the Legal System, 135
• A trustworthy reputation can be exploited because it is imperfectly known #complicates (0.75)
• Some enforcement costs are unavoidable for sustaining honest exchange. #corroborates (0.70) — PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE OF…, 137