Emily Skarbek  

Covenants without the Sword?

Reading Bastiat's Economic Sop... Gary Cohn on the Chinese curre...

Can markets work without state regulation? The conventional wisdom suggests that this is not possible, but it turns out that trade often thrives outside of the state. There is a growing literature that demonstrates this. One of my favorite studies is from Peter Leeson, who shows that 18th-century pirate ships were self-organizing based on constitutional, democratic principles. Other classic pieces show why Orthodox Jewish diamond dealers didn't use contracts, how rural neighbors resolve disputes through social norms instead of courts, and how long-distance commercial ventures in the 11th-century were self-regulating. My own research has also shown how an informal money transfer system, known as Hawala, allows high-volume, international financial transactions without any oversight or regulation by nation states, and that it has done so successfully for several centuries. These studies illustrate how markets and social cooperation can emerge without the state.

In a recent paper in the American Political Science Review, David Skarbek contributes to this literature by showing how prisoners create systems of self-regulation in the underground economies in prisons around the world. (Full disclosure: David is my partner.) The paper, "Covenants without the Sword? Comparing Prison Self-Governance Globally," shows that there is significant variation in the informal life of prisoners (ungated copy).

For instance,

In Latin America, inmate groups of diverse variety wield authority, and they are sometimes the main or only source of governance. In Scandinavian countries, by contrast, informal institutions are relatively unimportant. Informal institutions also vary within developed western countries. Organized, ethnically segregated gangs govern Californian men's prisons, but similar groups do not operate in England.

Skarbek makes two arguments. First, when officials do not govern effectively, informal prisoner institutions play a more important role. Prisoners fill the gap in governance left by delinquent officials. When officials do their jobs well, such as in Norway, prisoners have little need to self-organize. Second, prison gangs do a good job of regulating the underground economy, but they are not always the most efficient source of governance. As earlier studies showed, ostracism is effective in small, tight-knit communities, but these decentralized punishments are ineffective in large populations of strangers. As a result, in large prison systems, prisoners turn to gangs to create rules, threaten more severe punishments, and to facilitate order (see this Econtalk). In small prison systems, prisoners do not need gangs to do so. They can easily do it on their own.

Prison California resized.png

Studying prison social order shows how informal institutions work and how they evolve across time and space, given the constraints faced by a particular community. This account differs from much of criminology by providing a new theoretical framework for analyzing prison social order. It also builds on one of Elinor Ostrom's classic (1992) contributions, by showing that not only is self-governance possible, but it can even work among people most likely to misbehave. As Skarbek writes:

prison presents something closer to a "worst case" scenario. Prison populations are comprised of a biased agent type, forced to interact with each other, with no exit options, and sometimes living in desperate poverty. Nevertheless, this article shows that inmates can develop effective (albeit far from ideal) solutions to the problem of order, and these solutions take diverse forms depending on official's choices and the demographics of the community. Extralegal governance is not only possible, but is often robust to significant difficulties.

COMMENTS (7 to date)

Wonderful! Thanks to you and David.

In my way I've contributed to the understanding stateless law, in my early paper The Power of Ostracism and a later paper Gateway to an Altered Landscape: Law in a Free Nation.

JK Brown writes:
how rural neighbors resolve disputes through social norms instead of courts

That this is a "finding" completely ignores the historical foundations of Anglo-Saxon law. Common law was simply social norms. What "courts" were constituted were for judges to determine what the norm (the law) was. Rural neighbors generally have someone who is respected that can tell those in a dispute what the social norm is, i.e., be a judge.

Statutes, popular lawmaking, is a recent development in human history, especially in those nations in the Anglosphere.

How many of us have ever formulated in our minds what law means? I am inclined to think that the most would give a meaning that was never the meaning of the word law, at least until a very few years ago; that is, the meaning which alone is the subject of this book, statute law. The notion of law as a statute, a thing passed by a legislature, a thing enacted, made new by representative assembly, is perfectly modem, and yet it has so thoroughly taken possession of our minds, and particularly of the American mind (owing to the forty-eight legislatures that we have at work, besides the National Congress, every year, and to the fact that they try to do a great deal to deserve their pay in the way of enacting laws), that statutes have assumed in our minds the main bulk of the concept of law as we formulate it to ourselves. I guess that the ordinary newspaper reader, when he talks about ‘laws" or reads about "law," thinks of statutes; but that is a perfectly modem concept; and the thing itself, even as we now understand it, is perfectly modem. There were no statutes within the present meaning of the word more than a very few centuries ago


Thus at first the American people got the notion of law-making; of the making of new law, by legislatures, frequently elected; and in that most radical period of all, from about 1830 to 1860, the time of “isms” and reforms — full of people who wanted to legislate and make the world good by law, with a chance to work in thirty different States — the result has been that the bulk of legislation in this country, in the first half of the last century, is probably one thousandfold the entire law-making of England for the five centuries preceding. And we have by no means got over it yet; probably the output of legislation in this country to-day is as great as it ever was. If any citizen thinks that anything is wrong, he, or she (as it is almost more likely to be), rushes to some legislature to get a new law passed. Absolutely different is this idea from the old English notion of law as something already existing. They have forgotten that completely, and have the modern American notion of law, as a ready-made thing, a thing made to-day to meet the emergency of to-morrow.

Popular Law-making: A Study of the Origin, History, and Present Tendencies of Law-making by Statute
by Frederic Jesup Stimson (1910)

konshtok writes:

self regulating markets appear spontaneously in small communities
that's not a big surprise

but for deals between strangers you need money and police

EclectEcon writes:

Marvelous stuff, both in the post and in the comments! I try to make similar points (and will use this post as well as the article) in my paper on "Property Rights and Contract Enforcement in the Post-Zombie Apocalypse", where I argue that a monopoly over the use of force must evolve somehow for there to be more efficient exchange. Apparently when prison officials exercise their monopoly over the use of force, the emergence of prisoner systems for enforcement is considerably less strong than it is when the prison officials do not exercise their monopoly over the use of force.

Michael writes:

Great points

Allow me two grammar nazi nitpicks:
1. populations comprise. Nothing EVER is comprised of anything. Look it up. Even educated native speakers make this mistake. Doesn't make it right (yet -- there are still a majority of us holding the fort)
2. ...officials' choices... (plural -- it most certainly not just one official who's making choices

but the point of the post & article is GREAT

RJ Miller writes:

Interesting examples that I'm glad to finally come across.

I'm surprised however that the implications of a recent experiment in unregulated markets aren't being emphasized more by the pro-market crowd...



The discipline of constant dealings sure is amazing by itself. Combine that with multisig schemes and you've got an instance recipe for spontaneous order.

I think it's about time I finally look into David Skarbek's work on prison gangs.

Brian Holtz writes:

For a list of 16 major modern problems that have never had a stateless solution anywhere any time, see http://libertarianmajority.net/what-empirical-evidence-supports-anarchism


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