James is an alley-mechanic – he and his team of five workers repair cars in an alley behind a church on the South Side of Chicago. James rents the space from the church pastor for $50/day. James has been doing business there for twenty years or so. Then, along comes Carl, another alley mechanic. He sets up a garage close to James. Carl hires some homeless people to hand out flyers offering discounts to motorists arriving at James’ repair shop.
James is ticked, to put it mildly. James thinks he has property rights to car repairs in the area – he pays $50/day for this right. He asks the pastor to adjudicate. The pastor is well-known in the neighborhood and often acts as a mediator in contractual disputes. The pastor finds in favor of James. But Carl is not from the neighborhood and does not acknowledge the pastor’s authority. He continues to compete with James.
James turns to an informal court that has developed in the neighborhood. The court arose to settle disputes between rival gangs but it grew to act as a general arbiter of contractual disagreements in the local underground economy. Again, the court finds in favor of James. Again, Carl ignores the determination of the “court” as it has no authority over him. Finally, the pastor is forced to use old-fashioned contract enforcement – violence. He hires a gang of thugs to beat up Carl and his crew and drive them out. End of story
(Source: Talk by Sudhir Venkatesh at the Harris School, University of Chicago)
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May 12, 2011 at 1:03 pm
k
so, the pastor is trying to protect his rent, which he is perhaps illegally demanding (?).
the other approach – which might have avoided this altogether – is that James and Carl get together – now the pastor will have to withdraw from his rent-seeking behavior…one might argue this is more efficient, since it doesn’t involve any violence.
May 12, 2011 at 1:05 pm
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[…] Cheap Talk, Sandeep Baliga recounts a tale of the emergence of legal institutions in an underground economy on the south side of Chicago. This post prompted me to think hard this […]
May 13, 2011 at 11:19 am
Pepple
I think James should have gone for the sport: marketing fire for fire. If he’s good, there’s no way the new comer will take his business. Carl on the other hand, believed in a law that did not operated in the alley.
December 2, 2012 at 1:13 am
Akabrali
Thats the point Rick, there is nothing ucntnstituoional about the residency requirement. It protects voters by making attempting to insure that their elected officials are familiar with the issue of their district. If this requirement falls, what is to stop anyone anywhere from running for office in any district just by renting an apartment there. It allows parties to pick candidates based on nothing but name recognition and attempt to pick up an easy seat, while taking no consideration for the needs of the district.In short, it bolsters machine politics and the smoke filled room Just because a member of the court doesn’t like the law, does not make it ucntnstituoional or void. Judges are to apply the law, leave the commentating to people like us who have the power to change laws at the ballot box.
May 15, 2011 at 11:58 am
Dan
Very interesting. When I heard Venkatesh give this lecture (at Harvard) he focused on the ‘informal institutions’ part and left out the end with the guy getting beat; certainly changes the message quite a bit, and suggests how hard it is to come up with truly self-reinforcing institutions not involving the potential of violence in a situation without 3rd-party contract enforcement…
May 18, 2011 at 1:23 pm
lark
The libertarian paradise will be characterized by the rule of thugs.
November 30, 2012 at 5:22 pm
Jacqui
Thank you Daniel! We both love our e-session pictures so much! You have such a wfodernul talent at what you do. We, too, can’t wait to see our wedding pictures! eons means forever ♥