Chicago Journal of International Law


This paper models a hierarchical system for market governance. A monitoring agency detects any opportunistic behavior in each small sub- market or lower tier, using the superior information available at that level. Trade can occur across sub-markets. A small upper-level group of sub- market monitors arranges communication of the news of any cheating in one sub-market to all other sub-markets. I examine when and how such a system can overcome the diminishing returns to information acquisition and communication that have limited the scope and size of self-governing trading communities in the past. I then offer tentative suggestions for governance of globalized markets.