We argue in section 2 that even if no pair of traders come together frequently, if each individual trades frequently enough within the community of traders, then transferable reputations for honesty can serve as an adequate bond for honest behavior if members of the trading community can be kept informed about each other’s past behavior. Well informed traders could boycott those who have violated community norms of honesty, if only they knew who the violators were. It is the costliness of generating and communicating information - rather than the infrequency of trade in any particular bilateral relationship - that, we argue, is the problem that the system of private enforcement was designed to overcome.

DEFINE: Defines transferable reputations and the private enforcement mechanism where information costs, not trade frequency, are the core obstacle to honest exchange. Builds on: "Group-wide reputation can enforce honest behavior among strangers."

PAUL R. MILGRO, PAUL R. MILGRO - THE ROLE O…, loc. 13