The most obvious problem with this reputation based account is that it seems to presume that a trader who is extorted by the Law Merchant can somehow make his injury widely known to the community of traders. It might be that the Law Merchant is a more sedentary merchant than the long-distance traders whom he serves, so that idea is perhaps not so far-fetched. Nevertheless, we shall argue that even if, in the spirit of our earlier analysis, there is no way for the trader to inform others about his injury, it may still be an equilibrium for the LM to behave honestly, due to the “client” incentives in the long-term relationship between the LM and each individual trader. More precisely, we will show that there is an equilibrium of the system in which every trader expects that if he pays a bribe he will be subjected to repeated attempts at extortion in the future; this dissuades the trader from paying any bribe. Then, a Law Merchant who commits to his threat to damage the reputation of a trader succeeds only in losing business, so he does not profit from making the threat.

Builds on: "Judges in the model are subject to corruption opportunities."

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 141