Chicago Journal of International Law


Impartial legal enforcement provided by the state is considered necessary for impersonal exchange, implying that the scope of enforcement determines the extent of the market and hence the division of labor and related efficiency gains. Yet, the development of effective impartial legal systems provided by the state to govern exchange relationships is a rather recent phenomenon. What were, if any, the institutions that enabled impersonal exchange prior to that development? This paper addresses this question by examining the European experience. It utilizes a game theoretic framework and historical analysis to examine the Community Responsibility System ("CRS") that enabled exchange characterized by separation between the quid and the quo over time and space that was impersonal, up to one's community affiliation. The CRS built on self-governed communities, intra-community (partial) enforcement institutions, and non-contractual joint communal liability in inter-community disputes that induced communities to care about their collective reputations. The analysis touches upon issues central to institutions: the optimal size of the legal responsibility unit as a function of different units' ability to identify, monitor, and punish wrongdoers; the endogenous elicitation of impartial justice from partial courts; the role of self-governed organizations that fall between the ways in which we model the state and communities; the complementarities between reputational mechanisms and those relying on coercive power; the importance of the distinction between personal and communal identities; how institutions endogenously determine if agents condition entering an exchange on the revelation of information regarding personal and communal identity or past actions or both; and the importance of overlapping generations' organizations, such as communities, in facilitating inter-organizational impersonal exchange based on reputation despite each individual's finite life span.