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Private GovernanceCreating Order in Economic and Social Life$
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Edward Peter Stringham

Print publication date: 2015

Print ISBN-13: 9780199365166

Published to Oxford Scholarship Online: August 2015

DOI: 10.1093/acprof:oso/9780199365166.001.0001

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The Evolution of Rules in Exclusive Clubs

The Evolution of Rules in Exclusive Clubs

From Coffeehouses to the London Stock Exchange

(p.61) Chapter 5 The Evolution of Rules in Exclusive Clubs
Private Governance

Edward Peter Stringham

Oxford University Press

Rule-enforcing clubs, like markets, evolve to meet needs. In London three centuries ago, government officials passed various restrictions against trading stocks and banned stockbrokers from the Royal Exchange. Stockbrokers, however, continued to meet in coffeehouses and eventually transformed coffeehouses into private clubs to create and enforce rules. The exclusive club that became the London Stock Exchange helped prevent untrustworthy people from entering the market and created incentives for cooperation among those let in. The history of the London Stock Exchange shows that “the rules of the game” for the most sophisticated markets evolved endogenously from the market rather than from government.

Keywords:   exclusion, bonding, private club, tragedy of commons, London Stock Exchange

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