So the system of private judges is designed to promote private resolution of disputes and otherwise to transmitjusr enough information to the right people in the right circumstances to enable the reputation mechanism to function effectively for enforcement. In order to succeed, such a system must solve a number of interconnected incentive problems: Individual members of the community must be induced to behave honestly, to boycott those who have behaved dishonestly, to keep informed about who has been dishonest, to provide evidence against those who have cheated, and to honor the decisions of the judges. All of these problems can be resolved by the system if certain institutional constraints are satisfied, as we show in section 3. Briefly, the costs of making queries, providing evidence, adjudicating disputes, and making transfer payments must not be too high relative to the frequency and profitability of trade if the system is to function successfully.

XREF: Relates to economic and game-theoretic work on reputation mechanisms and self-enforcing institutions like Ostrom's work on commons governance. Builds on: "Shared honesty reputations can enforce honesty in dispersed trading communities."

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 15