What's So Private about Private Ordering?


  • Tehila Sagy

  • I am grateful for the support of the E. David Fischman Scholarship, the John M. Olin Program in Law and Economics at Stanford Law School, the Stanford Center on Conflict and Negotiation, Stanford Law School, the Yonatan Shapira Post-Doctoral Fellowship at Tel Aviv University's Department of Sociology and Anthropology, the Israeli Council for Higher Education, and The Sacher Institute, and the Lady Davis Foundation. For their helpful comments, I wish to thank Lisa Bernstein, Josh Cohen, Mariano Florentino Cuellar, Hanoch Dagan, Yoav Dotan, David Enoch, Tali Fisher, Barbara Fried, Lawrence Friedman, Alon Harel, Adam S. Hofri-Winogradow (who suggested the title), Nicole Janisiewicz, Ofer Malcai, Barak Medina, Ariel Porat, Re'em Segev, Ronen Shamir, Ido Yoav, Eyal Zamir, the editors of Law & Society Review, the three referees, who improved the article considerably. Special gratitude goes to Uri Leibowitz for insightful comments and suggestions. The article also benefited from comments made by the participants in the Public Law and Human Rights Workshop at the Hebrew University Faculty of Law. Please address correspondence to Tehila Sagy, School of Law, University of Leicester, University Road, Leicester, LE1 7RH, UK; e-mail: tsagy@stanford.edu.


Private ordering—i.e., development of extralegal forums and forms of dispute processing by nonhierarchical groups—has preoccupied legal economists for nearly three decades. According to the prevailing analysis, private orders grow in socially-flat market communities without any intervention by the state. This article challenges the received view on two fronts: First, it establishes a causal connection between the development of private orders and a social hierarchy. Second, the article demonstrates that the state often intentionally assumes a proactive role in the creation of these orders. To illustrate this two-pronged theory of private ordering, this article offers a detailed analysis of three well-known cases that have been considered prototypes of private ordering by market communities: the Diamond Dealers Club of New York, the kibbutz in Israel, and ranch owners in Shasta County, California. Finally, the article argues for a need to re-evaluate the feasibility and desirability of private ordering and privatization of law.