Private Governance: Creating Order in Economic and Social Life.

• Author: Marciano, Alain
• Position: Book review

Private Governance: Creating Order in Economic and Social Life

Edward P. Stringham

New York: Oxford University Press, 2015, 296 pp.

There already exists a large and consistent literature about the virtues of private governance, a literature to which Edward Stringham himself has already contributed. His latest book, Private Governance: Creating Order in Economic and Social Life, partially based on previous publications, is a new study devoted to the same topic. Yet, this book is important because it is particularly useful at demonstrating that private governance works. More precisely, it is not only what is demonstrated but also how it is demonstrated that gives the book its value.

Private Governance is not an exercise in pure and abstract science of the sort practiced by mainstream economists. Rather, it is a study of institutions that arise from individuals' choices, correspond to their needs, and are adapted to each situation. To adopt such a pure and abstract approach to study private governance would be vain and useless because it would miss the main features of private governance, namely, it's adaptability and specificity. Thus, "because private governance is not a one-size-fits-all solution, research in private governance can analyze the various ways that parties deal with problems." "Can" and must, I would add. That is precisely what Stringham does in the book: he studies different examples of private governance and provides empirical evidence that, in a variety of different contexts, people devise their own (institutional and private) solutions to deal with the problems they face.

Such was the case in the 18th century, when the London Stock Exchange was created; or in the early 19th century, when "San Franciscans created a system of private police to ensure their physical security"; or, more recently, when PayPal faced massive frauds and lost huge amounts of money. Rather than waiting for a possible governmental solution, PayPal devised private solutions. Actually, all the examples given in the book confirm that it is common for individuals to not rely on state intervention--to not wait for a deus ex machina, to use Stringham's words, to solve their problems for them. This might surprise those who are used to government interventions and who tend to believe that markets cannot emerge and function without governments. But it has not always been like that.

Despite the book's empirical focus, it is not merely a spineless, atheoretical...