Theoretically, any institution that restores incentives for Honest trading by restoring the effectiveness of decentralized enforcement must inform a player when his partner has cheated in the past. If the temptation to Cheat is small and the value of continued trading is high, then this information need not be perfect, as in our model. So it may be possible to induce honest behavior using a less costly information system - one that costs only q < Q to inform a trader adequately well - and correspondingly to increase the traders' average payoffs from 1 - Q to 1 - 9.' However, using imperfect information to economize on information costs calls merely for a refinement of the Law Merchant system - not for something fundamentally different. It is not possible to provide correct incentives without incurring some information cost of this kind

DEFINE: Clarifies that imperfect information systems can substitute for costly perfect enforcement while still maintaining honest behavior, so long as temptation is small and trading value is high.

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 131