By Timothy M. Frye
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Additional info for Brokers and Bureaucrats: Building Market Institutions in Russia
Private protection organizations form a common but understudied answer to the problem of economic opportunism. 9 The fear of reprisal from a private enforcer may deter cheating and allow agents to capture part of the gains from trade. These groups have survived for long periods in diverse settings and have developed distinct, often mysterious, codes of allegiance, but at their core each survives by providing more secure property rights for a fee. More specifically, these organizations are a "specific economic enterprise, an industry which produces, promotes, and sells private protection" (Gambetta 1993, 3).
Institutions and Social Order 19 Self-Governing Organizations: Repositories of Reputation Many works present a bleak outlook for the creation of public goods, but a diverse group of scholars working in the new institutionalist tradition in political science, economics, anthropology, and sociology argue that under certain conditions agents can overcome the problem of social order without turning to an outside agent for enforcement (Geertz 1962; Granovetter 1985; Ostrom 1990; Putnam 1993; Ensminger 1996).
First, state agents may delegate governing authority to an SGO. The legal authority to trade by standardized rules can reduce the costs of transacting for group members over nongroup members and increase the value to market participants of joining and developing an SGO. Perhaps more important, the state may delegate the authority to make binding decisions to an SGO arbitration court. This formal authority can substantially increase the power of the SGO by raising the costs of noncompliance for cheaters who can no longer appeal the decision in state courts.