needed.28 Rendering collective action feasible, in turn, requires additional intertransactional linkages.
The proposition is stated in terms of the Nash equilibrium because it is a negative result: even with the most inclusive of noncooperative equilibrium concepts, the efficient volume of trade cannot be supported. For positive results, stronger, more convincing equilibrium concepts are used.
Game 2: Informationally Isolated Small Groups of Traders: An Uncoordinated Multilateral Reputation Mechanism. Information in medieval times was slow to spread by modern standards, but it was available. If a merchant was abused, even in the absence of any organization for diffusing information, some of his peers were likely to learn of it. Can this limited, uncoordinated diffusion of information reflecting informal linking of information transactions among merchants enable the ruler to commit not to abuse merchants at the efficient level of trade?
Suppose that an incident in which the city cheats a group of traders always becomes known to a larger group of traders. Formally, whenever a set T of traders is cheated, there is a set of traders T6 e T, each of whom learns of the event. Assume that there is some constant K
(1 # K < 4) such that if the number of traders cheated is X(T), then the number who learn about the event, X(T6 ), is no more than KX(T): if few traders are cheated, then proportionately few discover that the event has occurred. Each trader makes his decisions to bring goods based on history of his actions and relationships with the city and the behavior of the city known to him toward other merchants. Cheating could then lead to a withdrawal of trade by a group many times larger than the group that was cheated. Even if this could be realized, however, it would not suffice to support an efficient volume of trade.