EMERGENCE OF ENDOGENOUS LEGAL INSTITUTIONS: PROPERTY RIGHTS AND COMMUNITY GOVERNANCE * IN THE ITALIAN ALPS Marco Casari Purdue University Abstract: We study the community governance of common property resources with the goal of understanding why a legal institution is sometimes chosen over informal cooperation achieved through repeated interaction. After a game-theoretic and property rights analysis of the two regimes, we present empirical findings from pasture and forest management of 13th-19th century communities in the Italian Alps. The communities more likely to adopt a legal institution (a Charter) are generally less peripherical, have higher endowments of common property, and a larger population than the communities who don’t have one. There is also support for a model of diffusion of this legal innovation from neighboring communities. JEL: D23, Q2, K4 Keywords: Folk Theorem; Transaction costs; Sanctioning systems; Community enforcement; Common Property Resources * Correspondence address: Department of Economics, Krannert School of Management, Purdue University, email:
[email protected], tel: 765. 494 4364, fax: 765. 494 4360. I wish to thank Philip Hoffman, Simon Wilkie, Paolo Ghirardato, Charles Plott, Alvaro Gonzalez Staffa, Giangiacomo Bravo, George Mailath, and Jose Apesteguia for their valuable comments. All remaining errors are mine. This research was financially supported by the Division of the Humanities and Social Sciences of the California Institute of Technology. This work has benefited from the comments of seminar participants at Simon Fraser University, BC, Canada, TUFTS, Medford, MA, EHES Summer School, Lund, Sweden, and the 8th IASCP conference in Bloomington, IN. 1 EMERGENCE OF ENDOGENOUS LEGAL INSTITUTIONS: PROPERTY RIGHTS AND COMMUNITY GOVERNANCE IN THE ITALIAN ALPS I.