Path Dependence in the Development of Private Ordering

Abstract

Contrary to some idealized notions, Private Legal Systems (“PLS”) are not typically locked in Darwinian competition over the efficiency of their norms, and do not form autonomously (that is, without reliance on preexisting institutions) upon the identification of an efficient norm. The evolution of PLSs is primarily driven by the PLSs’ relative enforcement costs, not by the relative efficiency of the norm they attempt to enforce.

Because of enforcement costs’ role, PLSs form in a path dependent manner, beginning by enforcing a collaborative core norm – typically one that provides religious or social identity – then gradually expanding to enforce increasingly adversarial expansion norms. PLSs sometimes attempt to reduce path dependence by “inventing tradition” (creating rituals and symbols that suggest a shared identity) – an activity that has thus far not received much attention in the private ordering scholarship.

Keywords: private ordering, private legal systems, identity, norms, norm enforcement, path dependence, transaction costs

JEL Classification: D23, D71, D73, H41, K42, L14, N40