Trust, reputation and law: the evolution of commitment in investment banking

We discuss the commitment mechanisms that underpin social orderings. We categorize commitments in relationships along a hierarchy that runs from the most extralegal to the most legally intensive devices. Commitment devices are chosen in light of their social, legal, and technological contexts. Changes to these contexts, therefore, change the social order and, in extremis, can cause significant social dislocation. We use a new dataset of underwriting syndicates between 1933 and 2008 to argue that financial market have experienced such a dislocation. We discuss the policy implications of this dislocation with specific reference to cases in securitization and Merger and Acquisition markets.