Backhaus, Jü gen
A icle
Homogenous Social G oups Facili a e Exchange
Zei sch i ü Wi scha s- und Sozialwissenscha en (ZWS) - Vie eljah essch i de
Gesellscha ü Wi scha s- und Sozialwissenscha en, Ve ein ü Socialpoli ik
P o ided in Coope a ion wi h:
Duncke & Humblo , Be lin
Sugges ed Ci a ion: Backhaus, Jü gen (1980) : Homogenous Social G oups Facili a e Exchange,
Zei sch i ü Wi scha s- und Sozialwissenscha en (ZWS) - Vie eljah essch i de Gesellscha
ü Wi scha s- und Sozialwissenscha en, Ve ein ü Socialpoli ik, ISSN 0342-1783, Duncke &
Humblo , Be lin, Vol. 100, Iss. 2, pp. 203-227,
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Homogenous Social G oups Facili a e Exchange
By Jü gen Backhaus
In oduc o y ema ks on he pu pose o he pape and he ele ance o
an economic analysis o ins i u ions — II. Homogenei y and he s uc u e
o homogenous g oups — III. The eme gence o legal and illegal ne wo ks
o exchange — IV. Homogenous social g oups as unc ional subs i u es as
well as complemen s o economic and poli ical p ocesses — V. Some policy
implica ions.
I.
I is p obably an accep ed s a emen in he p o ession ha social
ins i u ions exe a conside able in luence on economic ac i i y1 and
he e o e me i he a en ion o economis s. On he o he hand, i
canno be claimed ha a compa a i e economic analysis o di e en
ins i u ions in e ms o hei unc ional con ibu ions o he ope a ion
o an economy, in e ms o he eabili y o exchange ela ionships, isk
and in es men decisions, g ow h and capi al o ma ion o ha mony o
s i e in indus y o ade is an a ea whe e he economis s could gi e
de ini i e answe s, should an enligh ened poli ician seek hei ad ice.
This s a e o a ai s is pa icula ly oublesome i he pu pose o
economic policy is mainly seen in he c ea ion o an economic o de
in which he democ a ic ax s a e should in e ene as li le as possible.
While neoclassical economics akes social ins i u ions mainly o
g an ed, which begs he ques ion o how uni e sally his body o
knowledge can be applied o di e ing economies, ecen yea s ha e
seen e o s o in eg a e economic ins i u ions in o he heo e ical
amewo k o he discipline.2 Recognizing ha ins i u ions eally ma -
e , cu en esea ch mos ly o a mic o- heo e ic o ien a ion now ends
o in eg a e a leas some elemen s o ins i u ional analysis, as in he
example o heo ies o unemploymen based on an analysis o he
labou con ac .3
1 An analysis o ins i u ions, howe e , nei he educes o Ma xism no is
i con ined o "E olu iona y Economics". Recen ly, we can wi ness a emp s
o in eg a e ins i u ional analysis in o main-s eam economics, oo. See e. g.
S a e (1976).
2 See e.g. "The Symposium on Economics o In e nal O ganiza ion"
(1975) and he "Symposium, The Economics o In o ma ion" (1976); o else
he de elopmen o he "Theo y o Ana chy",
Tallock
(1972, 1974).
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204 Jü gen Backhaus
This pape is in ended as an elemen o his mo e gene al esea ch
o ien a ion, al hough i s pu pose is a e y modes one. I hope o gi e,
hough pa ly in a en a i e way, an analysis o he impac o he
homogenei y o social g oups on bo h he s uc u es and ela ionships in
which ansac ions among economic agen s ake
place.
Mo e speci ically,
he concep o homogenei y appea s o con ain a se o condi ions which
desc ibe p ope ies o ela ionships be ween membe s o ce ain in-
s i u ions, whe e hese ela ionships, once es ablished, educe he cos s
o ansac ion among he membe s o he espec i e ins i u ions.
The concep o homogenei y ( o be de ined mo e speci ically in sec-
ion II) is p oposed o se e as an in eg a ing link be ween such dis-
pa a e ields as e. g. economic an h opology, public choice o he
economics o delinquency; he pu pose o his pape being o in oduce
he concep o homogenei y so as o gi e a cohe en economic in-
e p e a ion o appa en ly con adic o y phenomena such as he e o-
lu ion o a legal sys em and he eme gence o illegal sub- o coun e
ins i u ions, such as ma ia- ype o ganiza ions. This is an a emp o
p o ide a mo e gene al analy ic o mula ion o wha has up un il now
been ei he me ely desc ibed4 o been gi en an economic in e p e a ion
only in a e y na owly de ined con ex o qui e speci ic ins i u ional
a angemen s.5
Ac ually, he basic a gumen o his pape is a he simple: ansac-
ions be ween homogenous pa ne s in an exchange ela ionship end o
be less cos ly han ansac ions be ween he e ogeneous ac o s. S a ing
om his elemen a y p oposi ion, he ele ance o a gua an eed obliga-
o y social o de o a sys em o olun a y exchange is explo ed. This
is o show he ex en o which social o de is a means o educing ans-
ac ions cos s, and he ex en o which his is due o he homogeniza ion
o indi idual beha iou by he "imposi ion" o ules o public o de .
The e m "imposi ion", howe e , needs o be in e p e ed qui e ca e-
ully, imposi ion does no p eclude a willingness o accep uni e sal
ules and cons ain s. On he o he hand, he analysis also ques ions an
assump ion implici in he public choice li e a u e on he heo y o he
s a e o he e ec ha he public o de is unique. Indeed, i is nei he
uni e sal no unique. Ra he , he social o de is iewed as being
3 The app oach aken, howe e , may di e widely such as be ween Doe in-
ge and Pio e (1971), Malin aud (1977) o Williamson, Wäch e and Ha is
(1975).
4 Examples o qui e di e en o igin a e Bayley (1976), Bolnick (1976), I e-
land (1976), Van de Laan (1975), Oskamp and Pe lman (1966), Silcock
(19612-63) o Sussman (1972).
s A Public Choice app oach o he analysis o homogenous g oups and
hei abili y o acili a e exchanges in ce ain Chinese communi ies has been
de eloped by Jane Landa (1976 a), 1976 b).
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Homogenous Social G oups Facili a e Exchange 205
composed o he di e en no m sys ems which exis in a segmen ed
he e ogeneous socie y consis ing o homogenous g oups. This al e na i e
app oach se es as a ame o e e ence o a selec i e su ey o
empi ical and desc ip i e s udies analyzing he social unc ions o
homogeneous g oups as in e media ies in bo h he ma ke and he
poli ical p ocess. On he basis o he heo e ical o ien a ion (sec ions II
and III) and an o e iew and in e p e a ion o ins i u ions which seems
o i he heo e ical a gumen , an abs ac cha ac e iza ion and
ypology o homogenous social g oups is gi en.
The c ucial ques ion which e e ybody has o answe who p oposes a
new concep and o ien a ion o esea ch is: can new answe o
economic heo y and policy be expec ed? In concluding, I y o in-
dica e some new and pa ly uno hodox implica ions and insigh s which
u he esea ch on homogenous social g oups migh e eal.
II.
In his sec ion, he concep o a homogenous social g oup is in-
oduced in an abs ac way. The idea, o cou se, is a pe ec ly gene al
one. The e o e, I ha e a oided undue o malism.
Homogenei y
Gi en a socie y (S), which is composed o n indi iduals; whe e each
indi idual (i) has a ailable a se o al e na i e ac ions, which may be
called he indi idual ac ion se : (A*). The indi idual ac ion se s can be
assumed o con ain a leas some common elemen s.
Following an indi idualis ic iew, he se o al e na i es, o ac ion
se open o socie y (S) as a whole can be pos ula ed o be ealized as
combina ions o indi iduals ac ion se s. In he beginning, no u he
assump ions on he s uc u e o hese combina ions a e needed6. Thus,
social ac ion could a he same ime be he ac ion o all, some o
no membe s o he socie y in ques ion, all, some o none o hese ac-
ions could be iden ical. O cou se, some o hese combina ions a e
clea ly i ial. This ange o possible combina ions o indi idual ac ion
se s would gi e us socie y's ac ion se (As).
Then, a homogenous g oup may be de ined as any g oup (G) o in-
di iduals, whe e (G) is a p ope subse o he socie y (S). In a o mal
« O cou se, a mo e eals ic iew would ha e social ac ion o be con ingen
on ei he social o indi idual ac ion, whe e social ac ion is no simply he
agg ega ion o sepa a e ac s unde aken by indi iduals. Re inemen s such
as hese would, howe e , no necessa ily acili a e discussion o he basic
a gumen pu o wa d in his a icle. The e o e, he exposi ion is delibe a ely
kep as gene al as possible.
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206 Jü gen Backhaus
sense, homogenei y exis s as he es ic ion on he ac ion se s o he
indi iduals composing he homogenous social g oup. This way o
o mally in oducing he concep should1, howe e , no be aken o
imply a alue judgemen as o he desi abili y o "legi imacy" o ex-
cluding some al e na i es o ac om he indi idual's ange o ac i i y.
Thus, he exis ence o a homogenous g oup ac ion se (AG) may be
pos ula ed, which o ms he ou e bound o he ac ion se s o he in-
di iduals wi hin ha g oup, and whe e (Ag) is a p ope subse o (As).
Likewise, he indi idual membe o a pa icula homogenous g oup
has an ac ion se (Az(G)), which is a p ope subse o (AG).
This es ic ion on he ac ion se s o he indi iduals wi hin he
g oup, o o he g oup as a whole may a ise as a esul o any o a
numbe o possible o ces.
Following au ho s like Hayek (1967), one would p ima ily hink o
p ocesses o his o ical de elopmen which ha e gene a ed ypical pa -
e ns o beha iou in subse s o socie y; p esumably, because hese pa -
e ns o beha iou ha e su i ed he p ocess o selec ion and u ned
ou o se e membe s o hese social g oups bes o e ime; whe e hese
p ocesses o de elopmen and selec ion de ine oles, exclude some ways
o beha iou and encou age o demand o he s. Thus, speci ica ion o
oles (i. e. es ic ions on ac ion se s) could be seen as being he esul
o human ac ion, al hough no o human design.
Almos he opposi e could also be ue. One could hink o homoge-
nous g oups ha ing hei peculia "cons i u ions", whe e his cons i u-
ion is an ac o ei he conscious c ea ion o a social o de o a leas
conscious accep ance, and whe e "elemen s o common unde s anding
and common ag eemen (...) en ail limi a ions upon ac ion se s".7
Also, es ic ions could be s ic ly imposed, ei he ex e nally, o in-
e nally by some subse o he g oup, such as an eli e. Finally, he
sou ce o he cons ain may be pe ec ly obscu e, whe e he cons ain
is ne e heless e ec i e as a consequence o i s aci accep ance by he
membe s o he homogenous g oup.
7 This poin was s ongly made by Vincen Os om in his eac ion o an
ea lie e sion o his pape . (Le e o June 26,1978). I should like o quo e
a ew mo e sen ences, in which he pu o wa d a mo e speci ic in e p e-
a ion o he concep . "I seems o me ha you a e app oaching a p oblem
ha becomes a he c i ical o he 'Cons i u ion' o g oups (and s a es o
ha ma e ) in he sense ha Buchanan speaks o cons i u ion oo. (...) In
a sense hen you whole pape could be cons ained in one ha would be
amenable o analysis as one ha is conce ned wi h c ea ing cons i u ional
o de s." The e m "c ea ion" in his con ex should be handled wi h ca e;
see in pa icula he c i ique by Hayek (1967), and mo e speci ically, and
also o be seen in he con ex o 'p esc ip ion', Sha e (1975).
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Homogenous Social G oups Facili a e Exchange 207
P esc ip ion
One pa icula case o es ic ion migh be use ully singled ou , since
i seems o be ele an o he analysis o exchange ela ionships.
"P esc ip ion" can be ega ded as a special case o he gene al es ic-
ion on he ac ion se s o membe s o he homogenous g oups. Hence, a
speci ic ac ion is p esc ibed, o indica ed o a gi en ci cums ance —
a he han a ange o possible ac ions. Thus, he al eady educed ac-
ion se o he indi iduals membe s o a pa icula g oup is na owed
down o only a single elemen such, ha , gi en a pa icula ci cum-
s ance, o s imulus a ec ing an indi idual membe o a homogenous
g oup, as a esponse his membe has only one possible ac ion a ailable,
and will eac as p esc ibed. This is ele an whe e e in social o gani-
za ion he p edic abili y o indi idual beha iou is impo an . Gene ally
speaking, p esc ip ion can hen be ega ded as a p econdi ion o
di ision o labou in socie y, and, mo e pa icula ly, in exchange
ela ionships p esc ip ion achie es wha o he wise has o be es ablished
by con ac o di ec i e.8
Fea u es
1. Reduc ion o Social Cos s
The es ic ions upon he ac ion se s o he membe s o he homoge-
nous social g oup imply he po en ial educ ion o social decision cos s
o his g oup. As an elemen a y p oposi ion, his would hold unde
wo assump ions: a) ha he cos s o social decisions a e a posi i e
unc ion o he complexi y o he se o al e na i es unde conside a-
ion; and b) ha complexi y can be measu ed by he numbe o al e -
na i es; han a educ ion o (As) o (AG) will ce e is pa ibus educe he
cos s o social decisions. Assump ion b) is a consequence o he ele-
men a y no ion o homogenei y de ined ea lie as a me e educ ion o
he se o al e na i es upon which o decide. This does no ca y any
quali a i e conno a ions. I , ins ead, es ic ion (and p esc ip ion) we e
de ined as s uc u ing he decision spaces in a quali a i e way, educ-
ion o complexi y could also be deal wi h in a quali a i e manne .
This would essen ially lead o he same p oposi ion.
"Social decision cos s" e e s gene ally o he cos s o sea ch, in-
o ma ion, conside ing al e na i es, and nego ia ing agg eemen s. No
all o hese cos s a y by necessi y wi h he numbe o al e na i es
unde conside a ion, bu a leas some ob iously do.9
8 Simila o ' es ic ion', 'p esc ip ion' is o be in e p e ed as a echnical
e m. By no means is coe cion he sou ce o ei he ' es ic ion' o 'p e-
sc ip ion'.
9 A cos app oach o social decision making was pu o wa d in hei
seminal book by James M. Buchanan and Go don Tullock (1962). In his
14 Zei sch i u Wi scha s- und Sozialwissenscha en 1980/2
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208 Jü gen Backhaus
2. Modi ica ion o he En i onmen
o Indi idual De iision Taking
The educ ion o he ac ion se s educes unce ain y and he e o e
inc eases p edic abili y o he dynamics o indi idual ela ionships.
P esc ip ion as he special case lowe s he cos s o aking decisions o
ze o.10 Also, p esc ip ion makes he beha iou o any one membe o
he homogenous g oup p edic able o bo h inside s as well as ou side s,
as long as hey unde s and he s uc u e o he g oup. P edic abili y o
indi idual decision aking en ails oppo uni ies o synch onized social
beha iou . Fo ins ance, eliabili y o indi idual membe s is essen ial
o he ope a ion o ne wo ks o communica ion. A unc ionally spe-
cialized communica ion ne wo k, in u n, lowe s he pe uni cos s o
in o ma ion. This ne wo k p ocesses and dissemina es in o ma ion, hus
p o iding an inc ease in he quan i y o in o ma ion manageable; o ,
possibly a he same ime, inc easing he quali y o he in o ma ion
p ocessed by noise educ ion o inc eased eliabili y.
3. En o cemen
Discussion o es ic ions o indi iduals ac ion se s and p esc ip ion
o eac ions begs he ques ion o en o cemen . Fo any gi en homoge-
nous g oup, he e exis specialized sys ems o he en o cemen o he
es ic ed ac ion se . These sys ems ac o en o e decisions o bo h an
indi idual and a socie al cha ac e , whe e a discussion o how en o ce-
men is ac ually e ec ua ed does no seem o be amenable o economic
analysis wi hou ending up in a au ological u ili y — cos calculus.
Lea ing he psycho-sociological ques ion o he echniques o social
en o cemen aside, i can be pos ula ed ha , due o specializa ion,
en o cemen wi hin he homogenous g oup is po en ially less cos ly
and/o mo e accu a e han social en o cemen in he es o socie y.
This in u n educes he cos o ansac ions a ising om de ian
beha iou o bo h he g oup as a whole, as well as he indi idual
membe , whe eas he e ec on he es o socie y depends on whe he
i is in he in e es o he nonmembe s ha he s anda ds o beha iou
in he homogenous g oups a e s able o no . Consequen ly, o ansac-
ions e ec ed in he con ex o homogenous g oups, he e is a po en ial
educ ion o ansac ions cos s a ising om con ac ing, ga he ing
and p ocessing in o ma ion as well as om policing.11
con ex , Sydney Ulme 's (1963) c i icism o hei no ion o cos s in poli ical
decision making is pe inen .
10 This does no apply o seconda y cos s o decision making, e. g. he
neglec o ele an al e na i es. Unde p esc ip ion, he cos s o o egone
oppo uni ies, which due o p esc ip ion could no be conside ed, can be
qui e subs an ial. See also he las pa ag aph o his sec ion.
11 Thomas D. C ocke (1971) in oduced his dis inc ion.
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Homogenous Social G oups Facili a e Exchange 209
4. Po en ial De ec s
Res ic ion, and especially p esc ip ion, en ails igidi y o he ho-
mogenous g oup s uc u e and implies a po en ial o des abilizing
de ec s, i he g oup's en i onmen , especially socie y as a whole,
changes; such a change may ende al e na i es ele an o he g oup
as a whole which a e excluded om conside a ion by ei he es ic ion
o p esc ip ion. Thus, he ad an ages o specializa ion, s abili y and
accu acy may be acqui ed a he expense o an inc eased p essu e
owa ds cons i u ional change. I his is so, an a gumen simila o he
one ad anced un il now may apply in u n. Homogenous social g oups
wi h a long his o y a e likely o ha e unde gone a a ie y o ins i u-
ional changes and could he e o e be said o be mo e s able han
so ie y as a whole in me a-cons i u ional e ms. O he wise, ela i ely
high cos s may be incu ed as a consequence o no aking in o accoun
al e na i es ou side o he es ic ed ac ion se . The e is a po en ial
inc ease o e ime in in o ma ion cos s conce ning he non easible se ,
upon he change o he en i onmen o he homogenous g oup. The
specializa ion cha ac e is ic o homogenous g oups can ha e ad e se
consequences. Rela i ely high seconda y decision cos s can be incu ed
as a consequence o no aking accoun o he elemen s ou side he
es ic ed se . This would mani es i sel in low quali y o decisions
and dis up i e ac o s bea ing upon in e indi idual ela ionships.12
O e ime, hese de ec s can be expec ed o disappea due o ei he
cons i u ional change o a dissolu ion o he homogenous social g oup.
5. Res a emen
Homogenei y o a social g oup is essen ially seen o be equi alen
wi h he es ic ion o he ac ion se s o he g oup membe s as com-
pa ed o he ac ion se s open o hose membe s o socie y who do io
belong o he homogenous social g oup in ques ion. This implies ha
homogeni y is a ela i e, no an absolu e concep . To speak o ho-
mogenei y o a social g oup is meaning ul only in compa ison wi h a
se o people cha ac e ized by ela i ely mo e he e ogenei y.
Secondly, es ic ion (and p esc ip ion) in »ac ion se s is no o be
con ounded wi h he in oduc ion o u ili y bounda ies. By es ic ing
he'ac ion se s and imposing an o de , a g oup will gene ally y o
ule ou ac ions which in he no mal cou se o e en s p oduce dis-
12 The incidence o social decision cos s depends on he s uc u e o he
homogenous g oup in which decisions a e aken. The abo e e e s mainly
o g oups in which decisions a e aken join ly by all membe s. I decisions
a e aken implici ly o hie a chically, a u he educ ion a al e na i es
will occu . Fo he sake o simplici y o exposi ion, dynamic aspec s a e
excluded om he p esen discussion, al hough hey a e o a ce ain ex en
implici in wha has been said.
14*
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210 Jü gen Backhaus
u ili ies o hei membe s, al hough hey migh be indi idually ad-
an ageous o any pa icula g oup membe a any pa icula poin in
ime.
The a ionale behind his a gumen can be eadily demons a ed by
e e ence o he well known "p isone s' dilemma" ype o game heo-
e ic si ua ion, whe e he coope a i e solu ion has o be en o ced by
a social o de . Homogenous social g oups may hen be said o ha e a
mo e inclusi e o de , p o iding mo e coope a i e solu ions among he
g oup membe s han is possible in he es o socie y.
Tha is, he o de wich es ic s he ac ion se s makes beha iou o
g oup membe s mo e p edic able, lowe s he cos s o ansmi ing in-
o ma ion among g oup membe s and, mo e gene ally, lowe s he cos s
o ansac ions; his o de can be said o be a a he de ailed cons i u-
ion. Since he cons i u ion o a homogenous social g oup o his g oup
is o such ela i ely conspicuous impo ance, wha e e cons i u ional
change may be equi ed will a ec he g oup and each o i s membe s
mo e in ensely h¡an would be he case in a less homogenous g oup
wi h less in e dependence among g oup membe s.
III.
I has been known o a long ime ha he es ablishmen o a sys em
o gua an eed o ms o ag eemen , o en o ced ules and a singula
(non-dispu able) a ibu ion o al e na i e ac ions o indi iduals o
collec i es is a necessa y p econdi ion o a sys em o olun a y ex-
change. This is achie ed by uling ou ce ain ac ions which would
iola e he public o de ( es ic ion) and he al e na i es o ac in-
di idually can u he be educed by pa icula obliga ions o con-
ac s (p esc ip ion). Singaila ly a ibu ed al e na i e ac ions cons i u e
"p ope y igh s". Thus, a speci ied sys em o legal egula ion and
social no ma ion is an ins i u ional p e equisi e o he e ec i e ope a-
ion o he ma ke economy, see o a ecen es a emen Muelle (1976,
397) wi h u he e e ences o he pe inen Public Choice li e a u e.
In pa icula , ecen discussion among Public Choice heo is s has
cla i ied hese condi ional in e ela ionships wi h he ad ancemen o
he " heo y o ana chy", Tullock (1972, 1974). This body o heo e ical
li e a u e seeks o explain, among o he hings, he eme gence o he
cons i u ional s a e and he condi ions o i s exis ence; Buchanan (1975).
Acco ding o his iew, he legal sys em is a collec i e good, om
which no membe o socie y can be excluded.13
13 This iew was de eloped by Buchanan (1975, Ch. 7), ollowing a line o
hough ini ially elabo a ed in I eland (1968). This iew was aken o an
ex eme by Holcombe and Tollison (1976).
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Homogenous Social G oups Facili a e Exchange 217
such, he no ion o a homogeneous social g oup is pe ec ly gene al,
and so a e he accompanying no ions, in pa icula cos s and bene i s.
Mo e speci ically, he social cos s o he membe s o he homogeneous
social g oup ai e he u ili ies o egone due o es ic ion. These a e no
iden ical o he social cos s he exis ence o he homogeneous social
g oup may impose on o he membe s o socie y who a e in u n no
membe s o his g oup. Simila ly, he bene i s, which he membe s o a
homogeneous social g oup enjoy as a consequence o he p ope "ope a-
ion" o he homogeneous social g oup s uc u e a e no simila o
hose bene i s which o he membe s o socie y may enjoy in e ms o
ex e nali ies spil o e by he exis ence o he homogeneous social
g oup.
The e olu ion o subs i u es o s a e o ganiza ion
In his sec ion, I wani o 'discuss ce ain condi ions unde which he
singula i y o s a e o ganiza ion is ques ioned. In o de o de elop his
a gumen , a scena io is desc ibed unde which a coun e s a e o ganiza-
ion de elops. We may in e p e (T) mo e na owly as being he legal
s uc u e, which is gua an eed by he s a e. The e a e a ious easons
why he e may be a di e gence be ween he no ms and p e e ences
held by a subs an ial pa o e en he majo i y o socie y and he
no ms p esc ibed by he legal sys em. O , mo e gene ally, he legal
sys em, a leas in some a eas, may impose cos s on pa ies seeking
con lic esolu ion, Which hese pa ies can pa ly o mos ly a oid when
aking ecou se o nons a e o ms o con lic esolu ion. In business, we
may hink o a bi a ion p ocedu es. Also, he s a e is o cou se no
simply a de ices o economize on he cos s o ansac ions by designing
ins i u ions which acili a e exchange. Ra he , he s a e has he quali y
o a "mo al" ins i u ion, by which quali y i ends o o e ide he
p e e ences o i s membe s a leas om ime o ime. So, qui e o en
so e eign powe is used o p ohibi ce ain ansac ions, which some
membe s o socie y may disapp o e o , in which o he s may ne e -
heless wan o engage. P os i u ion o he consump ion o ce ain na -
co ics may se e as examples o his kind o p ohibi ed exchange. In
hese cases, he cos s o ansac ions a e aised ins ead o minimized by
he s a e legal sys em. Whe he such p ohibi i e policies »a e e ec i e,
howe e , depends on he a ailabili y o subs i u e pa e ns o exchange.
Again, we exclusi ely hink o se ice (s) by which an exchange is
ac ually made possible, and in o de o 'dis inguish his pa om he
es o he a gumen whe e we deal wi h legi ima e exchanges, he
se ice which is o acili a e an 'illici exchange is deno ed as (s). Then,
he e will be a demand o his se ice (Ds), as well as he cos s o
p o iding he se ice, which a e a unc ion bo h o he " eal" cos s o
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218 Jü gen Backhaus
ansac ions as well as he »expec ed punishmen by s a e en o cemen
agencies.18
I ollows om he discussion in sec ion II, ha an exchange p o-
hibi ed by he s a e legal sys em could ne e heless be e ec ua ed in
he con ex o a homogeneous segmen o socie y whe e he homo-
genei y o his g oup would p o ec he exchange ela ionship om
ou side in e e ences, especially om in e e ences om en o cemen
agencies. In he absence o such an ins i u ional de ice, e en i he e
is a la ge posi i e di e ence be ween he demand o his exchange
and he expec ed cos s (including hose in lic ed by en o cemen
agencies), he ansac ion will no ake place. I , howe e , he s a e
happens o p ohibi an exchange which may be acili a ed wi hin a
p e-exis en social g oup (such as an e hnic mino i y wi h ew ou side
con ac s19) and which, consequen ly e ades poli ical con ol, he se up
cos s o an al e na i e ins i u ional s uc u e may be ela i ely small.
By "se up cos s" we unde s and all hose cos s o be bo ne by he ¡ho-
mogeneous sub-segmen o socie y which a e a ibu able o a decision
o engage in he ansac ion in ques ion. Again, hese canno be ex-
haus i ely speci ied unless a pa icula example is examined, bu in a
gene al way we may again e e ) o he u ili ies o egone by g oup
membe s due o he engagemen in he illici ansac ions men ioned.
I ha e o he sake o simplici y up un il now discussed he p ocess
o he change o ins i u ions as i he ins i u ion as a echnology we e
owned by someone who was in he posi ion o modi y i delibe a ely.
Al hough he e may be a hin o u h o siuch a iew, e. g., when
o ganizing pa e ns o beha io and esponsibili ies in indus ial and
adminis a i e o ganiza ions, in gene al social enginee ing isn' as pe -
asi e, and he bene i s om modi ying ins i u ions canno easily be
eiaped by an en ep eneu . In gene al, social change will no be an
a i ac bu a de elopmen , composed o many elemen s, each an 'ad-
jus men o new p essu es and/o oppo uni ies.
This iew seems o be pa icula ly app op ia e when discussing he
scena io o how coun e -s a es may encoiun e he p ope condi ions
o de elop.
To ecall, ade wi hin his al e na i e social s uc u e o exchange,
(s), implies an insu ance agains oiu side in e e ence in o he exchange,
pa icula ly ac ion by he s a e 'and i s en o cemen agencies.
18 Fo a g aphical ea men o his ela ionship he eade is e e ed o
Buchanan (1973).
19 The Chinese he oin ma ke in cen al Eu ope may be quo ed as an
example.
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Homogenous Social G oups Facili a e Exchange 219
In Figu e 3, I ha e ied o illus a e a case Whe e he e is one ex-
change ( equi ing he se ice Sj) he demand o which is la ge enough
o co e he cos s o engaging iin he espec i e ansac ion. These cos s
a e shown in he echnology cos - unc ion (Ti), and he poin I is he
ini ial b eak e en poin . Once his exchange ela ed se ice (sj) is
p o ided by he ins i u ion cha ac e ized by (Ti), also he demand o
o he somehow ela ed se ices may be sa is ied. This calls o an
adap a ion o he ins i u ional echnology espec i ely.
Fig. 3
Fo ins ance, (T2) ep esen he echnology cos unc ion, whe e bo h
he demand o (s7) and
(sj +1)
can be sa is ied. {T5) hen is he ech-
nology cos unc ion which ¡ ep esen s he ins i u ional amewo k
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220 Jü gen Backhaus
h ough Which 'all se ices (sj) h ough (sj
+ 4)
can be p o ided. The
shaded a ea gi es an idea -abou p o i po en ial o such an (illici )
ac i i y.
In e ms o an analysis o en o cemen s a egies, i would be in-
e es ing o see whe he lhe ins i u ional ne wo k which acili a es il-
lici exchange could be wiped ou by elimina ing he ini ial demand o
(s;), e.(g. by legalizing he ade 'and he commodi y, lhe exchange o
which (s;) acili a es. In lhe example depic ed in Figiui e 4, his would
no help a all. The e-legaliza ion o he ade in (j) does no des oy
he whole ne wo k. The p ocess o he e olu ion and concen a ion o
coun e ins i u ions in his example is no 'as easily e e sible. Once
es ablished, he ne wo k 'unde hese ci cums ances could e y well
su i e on he exchange ela ionships acili a ed by
(sy +
i) h ough
(S;+4). Fu he mo e, o cou se, a e e-legalizai ion he e is no mally
no es ic ion o legalized exchange, which could be e ec ed h ough
he same ne wo ks as unde p ohibi ion.
This scena io would explain how in he e ogenous socie ies, ma ia-
ype o ganiza ions which explici ly exis ou side he s a e legal o de ,
o en de ying i , could e ol e and pe sis . Coun e ins i u ions based
on he p inciples o es ic ion and1 p esc ip ion a e able o p o i om
a educ ion in he cos s o ansac ions, in C ocke 's (1971) axonomy
his implies "C" educed con ac cos s, "I" educed in o ma ion cos s
and "P", especially in he case o p esc ip ion, educed policying cos s.
This would pa icula ly educe he isk o mo al haizia d which o a oid
is, o cou se, essen ial o any ins/ui ance (A ow (1963)).20
The p o i o be made by ¡ acili a ing exchange h ough a homoge-
neous social g oup ne wo k, he exis ence — no ex en — o which is
shown in he ¡shaded a ea in Figu es 3 'and 4, is app op ia ed by he e -
ec i e "owne s" o he coun e ins il u ion. On he basis o his gene al
analysis hese owne s cannoi be iden i ied. We miay conside ei he
he homogeneous g oup as a whole, an eli e wi hin he homogeneous
g oup, socie y as a whole, he consume s o he se ices p o ided, o
e en an ex e nal agen . Simila ly, one does no no mally speak o he
"owne s" o ia legal sys em. The ques ion becomes ele an , howe e ,
when policy implica ions a e o be consid ed. The "owne s" can be
ega ded as hose g oups which ake an in e es in he shape, dynamics
and de elopmen o he ins i u ions in ques ion. Then he "owne s"
a e he agen s wi h whom he policy make has o eckon when making
homogeneous social g oups he ins umen o objec o his policy.
20 The concep o "mo al haza d" was in oduced by A ow (1970). Fo an
exe nsi e discussion see Eisen (1978). In he case o p o essional e hics, e. g.
public silence is p esc ibed as he adequa e esponse upon ecei ing know-
ledge o a colleague's ac o malp ac ice.
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Homogenous Social G oups Facili a e Exchange 221
J+4
AMOUNT OF
TRANSACTIONS
Fig. 4
IV.
In he p eceding sec ion, coun e ins i u ions which acili a e ex-
change ha e been discussed as subs i u es o he s a e legal sys em
and by i ue o his discussion somehow appea ed in he ligh o
unlaw ulness. I would, howe e , be g ossly misleading o hink o
coun e ins i u ions only in e ms o subs i u e ne wo ks engaged in
illici ansac ions. The p edominance o ex a legal ade would in
gene al be mainly he esul o unwise public policy. Indeed, he s udies
men ioned ea lie deal wi h a wide a ay o di e en ealiza ions o he
basic p inciple discussed in his essay, such as
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222 Jü gen Backhaus
— e hnically homogeneous g oups21 h ough which he ade o speci ic
commodi ies is ca ied ou ;
— homogenei y o local esiden s which helps in p og ammes o com-
muni y de elopmen ; see Bolnick (1976);
— he e hnic and local homogenei y in Japanese neighbou hoods,
which e ec i ely ende s police se ices supe luous, Bayley (1976);
u he , in his case i is highly doub ul whe he any s a e no m
no sha ed by he homogeneous neighbou hood could e ec i ely be
en o ced by he s a e by means o police in e en ion;
— e hic homogenei y in p o essional g oups acili a ing in e nal g oup
communica ion as well as he en o cemen o s anda ds o com-
pe ence, de ian beha iou being ul ima ely sanc ioned by ex-
pulsion; his me hod also p e en s de ian beha io in p isone —
dilemma ype si ua ions22, whe e he common bene i may be a
monopoly o ca el p o i ex ac ed om he es o socie y; Sil-
cock (1962) and A ow (1963);
— as a inal, hough by no means exhaus i e example23, we may quo e
pe sonalis ic homogenei y o social g oups (iden i y g oups24). These
may u n ou o be pa icula ly ele an in bodies o poli ical deci-
sion making o limi ed size, such as in commi ees. These g oups
se e as quasi-insu ance sys ems agains he isk o being de ea ed
by o e, he iden i y g oup always o ing as a block, ollowing
g oup decisions made ea lie ; he indi idual membe subs i u es he
isk o being openly 'de ea ed o he isk o in e nal de ea , which
is p e e able ei he because o simila i y o membe s' p e e ence o
because o he likely e osion o he s anding o he pe son in ques-
ion in he espec i e body o decision making; I eland (1976).
21 Th ough hese g oups he ade o speci ic commodi ies (impo and
luxu y goods h ough Lebanese ade s in Sie a Leone, ubbe h ough he
Hokkien Chinese amilies in Singapo e and Wes e n Malaya) was e ec ed.
While in Sie a Leone Lebanese ade s we e he only g oup main aining
ou side as well as na ional con ac s and he e o e we e able o engage
in impo ade, he Hokkien Chinese educed con ac cos s (in pa icula
unce ain y due o un eliabili y o indigenous p oduce s and u he agg a-
a ed by peculia i ies o he small holde ubbe ma ke ) by means o deal-
ing exclusi ely wi hin hei own amilies, hus educing cos s o in o -
ma ion, ansac ion, con lic esolu ion e c.
22 The eade un amilia wi h his cons ella ion o in e es s is e e ed
o D. Luce and H. Rai a (1957, pp. 94 - 102, Ch. 5.4, 5.5).
23 Fu he cases analyzed include: John C. Hause, Thomas R. Sa ing,
Rodnes T. Smi h (1976, pp. 433-435, 431 - 432 and 303 -430 espec i ely);
Smi h's analysis, ocuses on he subs i u ion be ween legal and illici ade,
he homogenous g oups being i ms; Hi oaki Hayakawa and Zianiis Venie is
(1977, pp. 599 - 617). M. H. Moo e (1973, pp. 270 - 277).
24 in o de o gi e c edi o whom c edi is due, I should like o epo
ha acco ding o Thomas I eland, i was Robe Whi ake who in en ed
his e m.
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Homogenous Social G oups Facili a e Exchange 223
These examples also shed some ligh on how homogenei y is ac ually
achie ed. In gene al, es ic ion is a consequence o a common e e ence
sys em held by he g oup, p esc ip ion is equi alen o s anda dized
beha io and modes o conduc which also secu es he compa ibili y o
he ends o he indi iduals inco po a ed in o he .g oup. Homogenei y
seems o be con inually eenio ced by p ocesses o social coe cion,
which wo k smoo hly when membe s in e ac . When his socializa ion
ails, homogenei y can s ill be secu ed by { he h ea o ) expulsion o
de ian membe s, Aka lo (1976, 436). T ansac ions cos s in homo-
geneous g oups a e educed by a common language and social as well
as local p oximi y which bo h educe he cos s o communica ion and
hus acili a e mu ual moni o ing o g oup membe s. This leads o
s anda diza ion and consequen p edic abili y o g oup membe s' be-
ha io , and, as a consequence o bo h o hese ac o s, he a ailabili y
o speci ic insu ance sys em educing mo al haza d. In-g oup insu ance,
in u n, is supe io o ou side insu ance because o he educed cos s
o communica ion, o moni o ing g oup membe s and, in case o con-
lic , he educed cos s o con lic esolu ion.
No all o hese cha ac e is ics need be p esen in e e y case men-
ioned, homogenei y o social g oups s ill being a ela i e concep .
The e exis s, howe e , a close in e ela ionship be ween hese cha ac-
e is ics. These in e ela ionships dese e u he a en ion by econo-
mis s, apa om he explana ion a emp ed in his pape o he
eme gence o concen a ed 'and cons i u ed ins i u ions and he eme -
gence as well as pe sis ence o coun e ins i u ions o he public o de .
In concluding, le me u n o some possible policy implica ions.
V.
The economic ele ance o he analysis o homogeneous social g oups
as p oposed in his pape is o be seen whe e exchange ela ionships
a e o be explained. Mo e pa icula ly, in e ms o economic policy
he app oach is o be expec ed o be mos ele an whe e e o ming o
es uc u ing he ins i u ions o exchange is se as a goal o public
policy. The ollowing may cons i u e a possible esea ch agenda.
Compe i ion and ca els
Gi en ha homogeneous social g oups acili a e exchange, i should
be in e es ing o ind ou whe he hey ypically lead o ca eliza ion
o hose ma ke s which hey con ol and end o close ma ke s o
hemsel es, excluding nonmembe s. This possible seconda y e ec is
jus he co olla y o homogeneous social g oups' ela i e ad an age in
15 Zei sch i u Wi scha s- und Sozialwissenscha en 1980/2
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224 Jü gen Backhaus
ade. Ca eliza ion could be ei he bene icial o ha m ul o socie y as
a whole, depending on whe he he monopoliza ion leads o an in-
ensi ica ion o exchange (as a consequence o economies o scale in
p o iding he exchange ela ed se ices) o whe he i leads o a
educ ion in ou pu . O cou se, also bo h e ec s could occu . Unde
he assump ions o he p eceding analysis, he i s al e na i e seems
o be he mo e likely one.
I howe e , homogeneous social g oups wouid monopolize some il-
lici ading ac i i y, he second e ec could also be bene icial o
socie y, ollowing Buchanan (1973) Who a gued like his: "i monopoly
in he supply o 'goods' is socially undesi able, monopoly in he supply
o 'bads' should be socially desi able, p ecisely because o he ou pu
es ic ion" (119). Fo his su p ising esul o be co ec , howe e ,
Buchanan had o assume independence o c iminal ac i i ies (127)
whe eas in his essay he p ecise con a y was held o be co ec . I
di e en c iminal ac i i ies as such depend on an in as uc u e and
insu ance sys ems e c., he assump ion o independence is simply
un enable exac ly because o dec easing a e age cos s o he inclusion
o u he ac i i ies in o he illici exchange sys em, see also Backhaus
(1979). Ob iously, discussions o his kind open up a wide a ea o
esea ch, he scope and possible ui ulness o which, oday, can ba ely
be app ecia ed.
In e na ional ade
Simila ly, homogeneous social g oups can be expec ed o acili a e
exchange whe e e a i icial ba ie s ha e been imposed. This may be
applicable o in e na ional ade, an applica ion o which was al eady
sugges ed by Vande laan's (1975) s udy on he Lebanes ade s in
Sie a Leone. Again, his should also apply o illici in e na ional
ade, such as d ug a ic, and a e y special applica ion would deal
wi h he ade in in o ma ion and he possibili ies o censo ship,
Re o ms o he Legal Sys em Tullock (1969), Backhaus (1978).
A inal ( hough by no means exhaus i e) example could sugges pos-
sible e o ms o he legal sys em i sel , on he basis o an economic
analysis. The cu en si ua ion has he cos s o ci il li iga ion on a
con inuous ise, G unsky (1976), while he amoun o con lic s sol ed
is no only sh inking in olume and quan i y bu also in quali y, wi h
ce ain ypes o legal con lic simply disappea ing om he s a e
sys em a all, a endency which has been se e ely c i icized by lawye s
on occasion. One o he easons o homogeneous social g oups o be
able o acili a e exchanges is heii capaci y o sol e con lic s among
hemsel es wi h ela i ely mo e e iciency. Sepa a ing hose con lic s
ou o he gene al legal sys em which can be mo e e icien ly o ex-
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Homogenous Social G oups Facili a e Exchange 225
pedien ly be deal wi h in homogeneous segmen s o a socie y may be
a pe ec ly easonable de elopmen had i been made he objec i e o
public policy.
Summa y
The e iciency o exchange in an economy depends on he s uc u e o
social ins i u ions in which ade is allowed o ake place. This calls o an
emphasis on he economic analysis o social ins i u ions. The pu pose o his
pape is o in oduce he concep o homogenei y o social g oups. Homo-
genous social g oups a e desc ibed bo h heo e ically and by way o examples.
They a e shown o acili a e he es ablishmen and p ese a ion o ce ain
ypes o exchange ela ionships, bo h legal and illici . This sheds some new
ligh on ecei ed op ions o publicy, e.g. in e ms o some uno hodox
an - us implica ions.
Zusammen assung
Die E izienz des wi scha lichen Tausches is du ch die gesellscha lichen
Bedingungen bes imm , un e denen Aus auschbeziehungen gep leg we den
können. In diese A bei we den bes imm e gesellscha liche Ins i u ionen
un e diesem Aspek e ö e , indem de Beg i de Homogeni ä eine sozia-
len G uppe einge üh wi d. Homogene gesellscha liche G uppen, so wi d
anhand eine heo e ischen Abs ak ion sowie e schiedene Beispiele ge-
zeig , e leich e n die G ündung und den Fo bes and bes imm e Fo men
on Aus auschbeziehungen, sowohl legale als auch illegale . Da aus olg
eine neue Sich einige adi ionelle Op ionen de Wi scha spoli ik, zum
Beispiel e was uno hodoxe we bewe bspoli ische Vo schläge.
Re e ences
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