HLS Private Law Workshop; Lisa Bernstein, Revisiting the Maghribi Traders (Again)

Post by Patrick Goold

Avner Greif’s study of Maghribi Jewish traders in the eleventh century is a seminal work in the literature on private ordering. In a couple of highly influential articles (here and here), Greif documented how this group of merchants created elaborate trading networks across the Islamic Mediterranean. Greif argued that the Maghribi formed a close-knit “coalition” that could eschew enforcement of agreements by lawsuits and the threat of liability and instead rely on reputation-based community enforcement. However, in recent years, historians of the period, including  Jessica Goldberg, as well as Jeremy Edwards and Sheilagh Ogilvie, have questioned Greif’s thesis, suggesting that there is little evidence of Maghribi traders boycotting members for misconduct, and some evidence that they relied on courts.

At this week’s HLS Private Law Workshop, Lisa Bernstein presented a draft essay that revisits this topic (Revisiting the Maghribi Traders (Again): A Social Network and Relational Contracting Perspective). Bernstein proposes to revise Greif’s analysis by swapping out the notion of “coalition” on which he relied for social network analysis and relational contract theory. While this is an alternative account of the Maghribi activities, it nonetheless supports Greif’s central thesis.

Although Maghribi merchants sometimes formed partnerships with one another, they more commonly used each other as reciprocal agents under a legally unenforceable agreement known as a Suhba. Under a Suhba, a merchant who asked his agent to perform a task (for example, travel to a foreign city to sell the merchant’s flax) would become obligated to perform a task of equal value (for example, introduce the agent to other important merchants). This system enabled the traders to diversify their trading portfolios and reach many markets across the Mediterranean without needing to travel with their goods. The center of this trading activity was Fustat, today part of Old Cairo, and it is a cache of documents in the Cairo Geniza that serve as the main historical record of the merchants’ activities.

Bernstein argues that the Maghribi traders were organized as a “semi-closed bridge and cluster network with small-world properties.” Within trading centers (cities like Fustat), most trade was conducted in the open with witnesses. Meanwhile, business and social interactions resulted in a dense network of ties that enabled reputation information to spread easily. These “network clusters” were then “bridged” by a number of social institutions and organizations. Postal routes between trading centers enabled information about reputation to flow between clusters. A handful of dominant traders also had personal and family ties spreading across a number of cities. In addition, an institutional functionary known as the “merchant’s representative” had an incentive to insure accurate information about dealings was transmitted between merchants. The merchant’s representative was a trader from a foreign city who established himself in a trade outpost. The representative’s stature in his new city depended on his ability to entice foreign merchants to do business there, which in turn depended on his ability to ensure that traders in the city kept their obligations. This structure of these bridges and clusters enabled reputational information to flow across the Islamic Mediterranean in such a way that network governance could potentially play a major role in supporting Maghribi trade.   

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In Trust We Trust — Yonathan Arbel

Post by Yonathan Arbel

The recent leak of the Panama Papers exposed the public to the magnitude of assets held in offshore accounts. These accounts are often associated with motives such as tax evasion and asset shielding from creditors, although they may be more legitimate motives to locating one’s assets offshore, such as privacy or preference for the rules of a specific legal system.  The estimates of how much is stowed offshore vary significantly, from one to five trillion dollars, an interval so large that it mostly reveals our ignorance. We simply know too little about these accounts, their motives, structures, and value—which, from the viewpoint of those who designed these trusts, is a feature, not a bug.  The most comprehensive work to date on the topic is that of Professors Sitkoff and Schanzenbach, who studied U.S. institutional trustees. However, these trustees are not likely representative of offshore trusts, and so, our understanding of offshore trusts is still foggy.

In a new intriguing paper, forthcoming in the Hastings Law Journal, Adam Hofri-Winogradow is providing us with a glimpse into the clandestine world of onshore and offshore trusts.  Hofri used a combined qualitative methodology of surveying and interviewing providers of trust services. Overall, he surveyed 409 providers of trust services and interviewed 25. Of his many findings, I will highlight just a few.

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“Zombie Debt”: Obligation without Liability? — Aditi Bagchi

Post by Aditi Bagchi

John Oliver recently purchased and forgave about $15 million in medical debt.  (See https://www.youtube.com/watch?v=hxUAntt1z2c)  His objective was to draw attention to the dubious practices of debt collectors, as well as their “right” to buy information about people who once owed money and to try to collect money from them, even if the debt is no longer legally binding because the statute of limitations has expired.  (What I will refer to as expired debt is also known as “zombie debt.”)  If a debtor makes or promises an additional payment or admits obligation, the statute of limitations may actually be extended and the dead debt may be revived.

There is a fair amount of legislation to protect consumers from debt collectors.  Debt collectors may not discuss debt with debtors’ friends or family and they may not threaten to sue on debt that has expired.  Individuals have the right to demand that debt collectors not call at work or that they cease direct communications with the debtor all together.  A lot of the worst practices by debt collectors are already illegal.

But not all of it.  Why not flat out ban the sale of expired debt?  Why not impose hefty fines on any attempted sale of such debt, including transmission of debtors’ information?  And why not heftier fines on any attempt to collect expired debt?

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Private Law and Asset Shielding — Yonathan Arbel

Post by Yonathan Arbel,  postdoctoral fellow in private law, Harvard Law School (job market candidate)

One of the central questions in the New Private Law is how ‘down-to-earth’ should legal analysis be? Regardless of one’s substantive view on this debate, there is one area in which we have been insufficiently realistic: private law enforcement. There is a real gap in our understanding of how legal norms are executed by sheriffs, bailiffs, and private ordering. Understanding the limits of doctrine and law could be informative for both economic and justice-based views of the law, as well as to views that look at the law from the internal point of view.

My scholarship focuses on questions concerning the enforcement of private legal norms. In Shielding of Assets and Lending Contracts (Forthcoming, Int’l Rev. L. Econ.) I consider the problem of asset shielding. Most judgments, if not voluntarily implemented, depend on enforcement through the seizure of the judgment-debtor’s assets. The problem is that ownership is too malleable and enforcement is too constrained, so there are many ways in which people can hide, shield, or protect their assets (transfer of money to an exotic offshore trust, bankruptcy planning, sham transfer to one’s relatives, hiding money under the mattress, etc.). Some of these techniques are more complicated than others, and some people will have moral reservations about deploying certain kinds of shielding techniques, or self-interested concerns about the effects of shielding on their credit scores, but overall, there is a real temptation here – especially since criminal enforcement against those who shield is quite rare. Given this temptation, it is puzzling why people do not shield assets more often. More generally, because avoiding judgments through asset shielding undermines many private legal obligations, it is important to have an account of when people would choose to meet their obligations and, if they decide to shield, the magnitude of assets that would be shielded.

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ISNIE 2015 — Dan Kelly

Post by Dan Kelly

The International Society for New Institutional Economics (ISNIE), soon to be renamed The Society for Institutional and Organizational Economics (SIOE), is hosting its 19th Annual Conference this weekend, June 18-20, at Harvard Law School.  The conference website includes details on this year’s program and papers.

The conference is sponsored by Harvard Law School through the Project on the Foundations of Private Law.  In addition to keynotes by Martin Nowak (Harvard) on “The Evolution of Cooperation” and Michael Whinston (MIT) on “Property Rights and the Efficiency of Bargaining,” the program includes a number of panels that intersect with private law topics, including agency and fiduciary law, contracts, intellectual property, and property rights.     

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The Acrobatics of Usury — Yonathan Arbel

Post By Yonathan Arbel

Perhaps one of the most plastic of all private law rules is the prohibition on usury. Judges and religious scholars have been pirouetting around this issue more-or-less gracefully for thousands of years. A recent interesting case in this regard is Bisno v. Kahn, 225 Cal. App. 4th 1087, 170 Cal. Rptr. 3d 709 (2014).  This case raises a question that is rarely asked: can a judgment-creditor charge any amount in exchange for delaying the execution of a judgment?

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