Governance Structures, Insider Status, and Boundary Maintenance

Abstract

If legal enforcement of contracts were omnipresent, omniscient, and costless, the identity and history of one's partners would be irrelevant, since any problems caused by unreliable partners could be remedied effectively. However, when legal enforcement is localized, imperfect, and costly, different governance structures for contracts carry implications for the sets of acceptable contracting partners. When legal enforcement for contracts is based on national law, whose reach is coterminous with a state's territory, acceptable partners tend to be defined territorially. When state enforcement of contract law is weak or nonexistent or when a contract is so vulnerable to nonperformance that it requires auxiliary support, actors must devise an alternative or supplement to state enforcement. The most relevant contracting boundaries then will be ones defining groups that can efficaciously create and maintain intertemporal, inter-issue, and inter-actor linkages. We examine just three of many possibilities: family-based, function-based, and ethnicity- or religion-based groups. These different systems of governance affect which entities are recognized as members in the club of actors, as well as how actors define their contracting boundaries and distinguish between those with whom they contract relatively freely and those with whom their contracting is more circumscribed.