Networks, Institutions, and Encounters: Information Flow in Early-Modern Markets

Abstract: New Institutionalism currently dominates research into the transition into capitalism, market economies, and economic development. Emerging economies are characterized by the absence of adequate legal infrastructures; thus it has been important to identify early state and non-state alternatives to modern legal systems in order to understand the process of economic development. Personal relationships, or network relations, have played a central role in this research -- as informal substitutes for legal systems that operate through reputation and closure mechanisms. Social networks, however, have at least two aspects: they can produce social closure or distribute information widely via heterogeneous and transient ties, i.e. weak ties. Weak ties are generally presumed to require institutional supports, such as a modern legal system, that create an atmosphere of generalized trust. Counter to these assumptions, we find an instance in which transient encounters give rise to the widespread diffusion of information via network ties in a weak institutional environment.