The Law Merchant enforcement system that we have studied restores the equilibrium status of Honest behavior. It succeeds even though there is no state with police power and authority over a wide geographical realm to enforce contracts. Instead, the system works by making the reputation system of enforcement work better. The institutions we have studied provide people with the information they need to recognize those who have cheated, and it provides incentives for those who have been cheated to provide evidence of their injuries. Then, the reputation system itself provides the incentives for honest behavior and for payment by those who are found to have violated the code, and it encourages traders to boycott those who have flouted the system. Neither the reputation mechanism nor the institutions can be effective by themselves. They are complementary parts of a total system that works together to enforce honest behavior.

Builds on: "A law merchant resolves trade disputes as an information repository and adjudicator."

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 164