Abstract
How are rules enforced in the absence of an organization with coercive powers? I examine the role of informal institutions in supporting self-enforcement of rules through ethnographic research on a popular form of community-based gambling in the Philippines. In ending, a reputation-based mechanism shapes exchange relations between bettors and bet-takers, and among members of a local community. Social norms about sharing one’s winnings (balato) provide community members with an interest in the outcome of these exchange relations, thereby strengthening the ability of bettors to acquire information about the reputation of various bet-takers. In consequence, bet-takers exert efforts to safeguard their reputation, and comply with informal rules about the immediate and complete delivery of winnings. The findings suggest that when communities are small enough so that members are able to observe each other, but not too small so that no individual possesses all the relevant information, then social norms that generate effective transmission of reputational information provide sufficient institutional support for self-governance.
Introduction
Alongside the formal rules enacted by official public authorities in a society are informal rules—the unwritten yet agreed-upon codes of behavior that take the form of norms, customs, and conventions. Both formal and informal rules, together with the organizations and processes established for their enforcement, constitute the elements of the institutional framework that structures human relations in a society. Formal and informal rules become institutionalized when they are socially reproduced through repeated adherence to particular patterns of interactions.
Formal rules rely on the coercive apparatus of the state for their enforcement and subsequent institutionalization. This apparatus includes a complex of organizations involved in various aspects of rule enforcement: the formulation of rules, dissemination of information on rules, monitoring of compliance, the determination of non-compliance, and the imposition of the appropriate penalties. When state enforcement is effective, heavy costs become associated with the violation of rules (North, 1990) and beliefs that others will abide by these rules are generated (Greif, 2006), thereby tending to produce rule-conforming behavior. The effective enforcement of rules is a necessary precondition for their institutionalization.
In the case of informal rules, the absence of any role for official authorities implies that enforcement and subsequent institutionalization occur in an environment in which there are no clear-cut rules on how rules are formed and enforced. 1 Two interrelated problems emerge: the fundamental issue of which rules members of a society will collectively adopt, and the consequent problem of how compliance with these rules is promoted.
Theoretical work on social norms and other informal institutions suggest a variety of mechanisms that address these issues. First, alternative norms may spontaneously emerge, with evolutionary processes eventually leading to the dominance of norms that enable a society to meet its various needs (Basu, 1996; Young, 1993). In this view, enforcement is largely unproblematic, since social norms that survive are those that successfully evolve and become repeatedly reinforced over time. Second, social norms may be rooted in the preferences of the more powerful social actors who stand to benefit from the redistributive implications of these norms (Knight, 1992). Consequently, these powerful social actors use their resources to apply coercive strategies of enforcement. And third, when interactions between two parties produce broader social effects, then social norms become intended to capture the positive and reduce the negative externalities associated with behavior in these interactions (Coleman, 1990; Ullmann-Margalit, 1977). Third parties who are directly or indirectly affected by norm violation become motivated to regulate others’ behavior when the expected benefits emerging from norm compliance exceed the costs of enforcement.
In this article, I build on this third literature and explore how regulatory interests are embedded in informal institutional arrangements. In a self-governance system in which neither official state structures nor other forms of non-state coercive organization assume any roles, it is these informal institutions that support rule enforcement. Empirical analysis on the enforcement of informal rules is hindered by the pervasiveness of formal rule-making and rule-enforcement organizations in contemporary times. For example, when both social sanctions and officially imposed penalties exist for certain types of behavior, it is difficult to isolate which of these produce the intended deterrent effects on undesirable behavior. Scholars have adapted to this methodological difficulty using various strategies: historical inquiry into the origins of informal institutions and their codification into formal rules (Greif, 1993; Milgrom et al., 1990; North and Weingast, 1989), experimental studies exploring conditions that facilitate punishment of norm violators (Fehr and Gintis, 2007; Horne, 2001), anthropological work on norm enforcement in traditional social groups untouched by modern state structures (Wiessner, 2005), and analyses of situations in which social enforcement of norms is preferred over legal processes of dispute settlement (Ellickson, 1991).
I aim to complement these studies by examining a novel, directly observable, real-world, contemporary example of exchange relations in which rules are enforced without coercive organizational structures. The article presents the first systematic exploration of the informal institutions of ending, a gambling scheme widely practiced in many local communities in the Philippines. In ending, which is neither state-sanctioned nor state-penalized, wagers are placed on the last digits of the final score of a game in the country’s professional basketball league. As practiced in local communities, the entry costs in ending are low, and there are no organizations that regulate entry; any member of the community may become a bet-taker. And because the wagers are placed on a game outside the control of any member of the community, the rigging of outcomes is not possible.
Nonetheless, a core problem emerges from the scheme’s informal status: How does a successful bettor enforce a claim on winnings? In the absence of formal rule-enforcement mechanisms, winners do not have recourse to public authorities to enforce claims. For ending to thrive, members of a community must collectively agree to abide by informal rules that provide confidence for potential bettors to buy wagers so that it is profitable for bet-takers to sell these wagers. The continued practice of ending suggests the presence of informal institutions that successfully develop expectations that rules will be enforced, and that therefore allow productive exchange relations between buyers and sellers of wagers to take place.
The absence of any government intervention in ending provides an ideal case for understanding how communities address the collective action problem of effectively enforcing informal rules in exchange relations. Using data from ethnographic fieldwork in an urban working-class community, I describe the patterns of interactions that sustain the practice of ending and investigate the mechanisms that generate compliance with its informal rules. I argue that a key element is how expectations are shaped by the generation and transmission of information about the reputation of bet-takers. Through the prevailing practice of sharing one’s winnings (locally called balato), community members benefit from ending and acquire an interest in relaying information to generous bettors about the reputation of various bet-takers. Availability of reputational information allows bettors to withhold wagers from errant bet-takers, and induces bet-takers to safeguard their reputation and comply with informal rules about the immediate and complete delivery of winnings. In ending, therefore, informal institutions that revolve around the role of reputation shape relations between bettors and bet-takers, and among the members of a local community.
I argue that this reputation-based mechanism is sufficient for sustaining the community practice of ending. Importantly, this examination of the informal institutions of ending provides generalizable theoretical insights about how collective action problems are overcome in self-governance systems in which no organization coordinates behavior around agreed-upon rules. Specifically, it demonstrates how third parties develop an interest in the outcome of an exchange relation and supply information that consequently generates self-enforcement of informal rules. In the penultimate section of this article, I also explore the roles of community size and social norms in sustaining such a self-governance system that is supported by a reputation-based mechanism.
I develop this article as follows. First, I discuss the role of institutions in rule enforcement and present a theory of informal institutions based on insights from the literature on regulatory interests in social norms. Second, I describe the mechanics of ending and demonstrate the absence of official public authority and other organization-based rule-enforcement mechanisms in its community practice. Third, I examine how a reputation-based mechanism revolving around the balato system provides the institutional foundations that generate compliance with informal rules. Finally, I draw from this community practice of ending some important implications for understanding rule enforcement in self-governance systems.
Rule enforcement and the role of institutions
The problem of rule enforcement in ending is more generally characteristic of inter-temporal exchange, in which the obligations of interacting parties are fulfilled in separate time periods. Suppose that in an exchange relation between parties A and B, A is to perform an initial action, so that B incurs a corresponding future obligation. The enforcement problem emerges when A possesses no or little information about B’s willingness and capacity to complete the exchange. Once A has performed his/her action, any further threat of sanctions is deemed not credible by B because B has already benefited from the first part of the exchange.
North (1990) argues that this problem of uncertainty resulting from incomplete information is addressed through the appropriate institutions governing exchange relations. Institutions are commonly understood to refer to the framework of rules, both formal and informal, that generate regularized patterns of behavior in social interactions. Central to the capacity of institutions to regulate behavior in exchange relations is the expectation among interacting individuals that any violation of the rules is costly (Greif, 2006). When these expectations exist, then individuals possess a motivation to comply with the rules and the corresponding disincentives for deviating from these rules, thereby resulting in equilibrium behavior consistent with the rules.
Expectations about the costliness of rule violation, and the consequent compliance with rules, are often generated by organizations that are part of prevailing institutional arrangements (Greif, 2006). 2 The coercive apparatus of the state is a prime example, but even private organizations such as firms (Williamson, 1975), merchant coalitions (Greif, 1993), and community organizations (Ostrom, 1990), among others, may facilitate effective rule enforcement among its members. Organizations enable the generation of shared norms among members, and importantly, the establishment of structures and processes for enforcing these norms (Hechter, 1987). These include an official designation of third-party enforcers, as well as incentives for group members to monitor each other’s rule compliance. Individuals become subject to organizational rules when the organization provides benefits valued by group members and excludable from non-members. Exchange relations that take place among group members thus become based on expectations of effective rule enforcement.
In the absence of an organization that provides third-party enforcement of rules, exchange relations occur in a self-governance system in which informal institutions shape expectations and consequent behavior. Without organizational support, self-enforcing institutions must include alternative mechanisms that provide a credible threat of sanctions for non-compliance with the rules of exchange through an automatic detection of rule infraction and the immediate triggering of corresponding penalties. In this way, the necessity of an external regulatory agency is reduced through the creation of an internalized link between an individual’s behavior and the expected consequences of that behavior.
In an inter-temporal exchange relation, informal institutions may generate compliance with the rules of exchange through a well-functioning reputation-based mechanism (Greif, 1993). This allows individuals to acquire adequate and timely information about others’ past behavior in observing the rules of exchange and honoring obligations that emerge from that exchange, and to use this information in choosing only reputable exchange partners. In consequence, individuals develop expectations that any misconduct is costly, exert efforts to cultivate and safeguard their reputation, and become motivated to comply with the rules of exchange. However, when no organizations exist to certify the reputation of different individuals, how may reputational information emerge, generate expectations of rule enforcement, and provide confidence in inter-temporal exchange? I draw important insights from the literature on regulatory interests in the enforcement of social norms and develop a theory of informal institutions that generate compliance with the rules of inter-temporal exchange.
Coleman (1990) considers social norms to be rooted in rights conferred on members of a group to intervene in a person’s behavior because of externalities that emerge from that individual’s behavior. Sanctions imposed on norm violators represent actions that exercise such rights. Norm enforcement, however, involves a collective action problem among the relevant members of a group affected by the regulated behavior. Since the benefits of sanctioning deviant behavior are gained by all members while the costs are borne personally by an individual enforcer, individuals would prefer to free ride on others’ efforts to enforce a norm.
This collective action problem may be overcome by the extent of the regulatory interest in people’s compliance with norms (Heckathorn, 1988, 1989). When the benefits generated by others’ norm compliance or the harms produced by others’ norm violation are great, then some individuals may be motivated to personally bear the costs of enforcing a norm. Moreover, prevailing metanorms—norms that govern behavior of enforcers in imposing sanctions on norm violators—may provide additional rewards for norm enforcers (Horne, 2004). Both the public benefits of norm compliance, and the private benefits selectively enjoyed by norm enforcers, may thus sufficiently motivate norm enforcement, especially in homogenous, cohesive communities in which repeated interactions generate strong social ties and interdependence (Horne, 2001, 2004).
In applying these insights to inter-temporal exchange relations, recall that the enforcement problem stems from an initiating party’s (A) lack of information about the likely future behavior of the obligated party (B). I suggest that informal institutions generate B’s compliance with the rules of exchange when the regulatory interest in B’s behavior expands to include those who possess both the capacity to acquire the relevant information about B and the motivation to relay this information to A. The motivation to relay information emerges from direct benefits that are received by others from that exchange, inducing in them an interest in the outcome of the exchange. The capacity to acquire relevant information arises from characteristics that facilitate observation of others’ behavior, such as group size and the frequency and nature of social interactions in a group. In this theory, it is not necessary for third parties to perform a direct intervention of sanctioning errant behavior. Instead, it is sufficient that they provide timely information that improves the ability of A to issue credible threats of sanctions, so that B develops expectations that violating the rules of exchange is costly and becomes motivated to comply with the rules.
Regulatory interests are thus deeply embedded in informal institutions that facilitate the enforcement of rules. In a community in which inter-temporal exchanges take place, three features make the informal institutions for rule enforcement self-enforcing. First, community members value public and private benefits derived from compliance with the rules of exchange. Second, individual behavior in completing obligations emerging from this exchange can be adequately observed by community members. And third, information about this behavior is acquired by parties to an exchange in a timely manner, so that threats of sanctions for errant behavior become credible. In the next two sections, I describe a specific case of inter-temporal exchange based on a form of community-based gambling in the Philippines and illustrate the operation of informal institutions that generate expectations of rule enforcement. I then return to the theoretical implications of this case in the subsequent section.
The game of ending
Ending refers to a gambling scheme in which wagers are placed on the last digits of the final score of a basketball game, excluding any overtime period, so that the total of 100 pairs of one-digit numbers constitute the range of possible wagers. In theory, the mechanics of ending can be applied to any basketball game. In practice, ending is played on the outcomes of games in the Philippine Basketball Association (PBA), which holds three conferences each annual season. In the 2013–2014 season, 227 PBA games were played. There are normally three PBA playdates in a given week. During elimination rounds, when two games are played on each playdate, wagers are typically placed only on the second game.
As practiced in local communities, ending is perceived to be fair in comparison to other forms of community-based gambling such as cara cruz, sakla, jueteng, and cockfighting. 3 In particular, the characteristics and practice of ending make it egalitarian in entry and outcome.
Ending is egalitarian in entry as a consequence of the low barriers that exist for any interested bet-taker. Typically, bet-takers use a commercially printed ending card to record wagers and collection of payments. This ending card may be purchased in many newsstands and small variety stores at a nominal cost of P1 to P3. 4 A more substantial cost incurred by potential bet-takers is the time and effort spent in collecting wagers since no intermediary agents are employed. There are no organizations that limit the entry of any potential bet-taker. Bet-takers usually consist of the unemployed, including housewives, grandparents, youth who have recently completed school, and teenagers (and even children as young as 9 years old) during school break. During the period of fieldwork in a community of around 140 households, an average of 18 persons took ending wagers at least once a week, with most of them taking wagers for the three times in a week in which PBA games are played. It is typical for only around six to eight persons to collect ending wagers at the beginning of a PBA conference. This then increases to as many as 15–20 persons toward the middle of the conference.
In comparison to other forms of community-based gambling, ending is also perceived to lead to the fairest results that depend on “pure luck” and the strict laws of probability, so that all wagers possess an equal chance of winning. 5 For example, in cockfighting, knowledge of a cock’s history and handler generates estimates of the odds of winning. 6 In the extreme case, it is possible for a devious person to rig the outcome by influencing the health and well-being of the cocks. In the same way, cara cruz, sakla, and jueteng may possibly be rigged through slight-of-hand tricks involving how coins are tossed, cards dealt, or balls drawn. In contrast, the PBA games upon which ending wagers are placed lie outside the realm of influence of any member of a working-class community, and so no bet-taker or bettor is at an inherent advantage. Since wagers are on numbers representing the final score, rather than on the identity of the winning team, the teams’ playing histories cannot be used to develop expectations about ending. Information on the winning pair of numbers is also immediately known in a local community because PBA games are aired on television.
The basic rules of ending are simple. For any ending card, wagers of equal amounts are placed on 100 pairs of one-digit numbers. Only one bettor may place a wager on a specific pair of numbers. A bettor may place wagers on multiple pairs of numbers. A bettor may also choose to place wagers on several ending cards from different bet-takers. The bettor of the pair of numbers representing the last digits of the final score of the basketball game (excluding points scored in overtime periods) claims the entire winnings for the ending card/s on which he/she placed the correct wager.
Fieldwork conducted in an urban community provides information about ending wagers and winnings, shown in Table 1, that are typical in many working-class communities. Each bet-taker chooses the price of wagers to be collected, with most bet-takers opting for the P20 wager. Typically, young children and teenagers choose to collect the lower P5 or P10 wagers. Only two individuals in the community are known to collect the highest wager of P100.
Typical wagers and winnings in ending. a .
All numbers are amounts in Philippine pesos (US$1 = PhP44.40).
Based on 100 possible pairs of one-digit numbers.
Assumes that all 100 wagers are collected.
In this variant, there are four chances of winning. The major prize is awarded for the number-pair representing the final score of the game (excluding overtime periods). Minor prizes are given to the number-pairs representing the scores at the end of the first, second, and third quarters.
Table 1 shows that successful bettors collect 70% of the total wagers. Since there are equal-amount wagers in any ending card, this translates into a 1:100 odds of winning a 70% increase on one’s wager (e.g. the prize of P350 is 70 times a wager of P5). In the per-quarter ending variant, there are four chances of winning: 10% of the pot is awarded to each of the winners for the first, second, and third quarters of the basketball game, whereas 40% of the total wagers is given to the winner for the final quarter. Winners in earlier quarters are qualified for subsequent ones, so that there exists the probability of receiving 70% of the total wagers, although the odds of winning in all four quarters are at 1:100,000,000.
Many bettors usually place more than one wager in an ending card to improve the odds of winning. Some bettors place wagers on the same pair of numbers from different bet-takers to increase the take-home amount when the wager emerges as the winner. Of note is the practice known as alaga, in which bettors consistently place wagers on the same pair of numbers in several ending cards and for each basketball game on which ending is played. 7 When this pair of numbers eventually emerges as the winner, a “landslide” occurs, in which the bettor takes home a huge amount of winnings from the different ending cards.
Table 1 also indicates that bet-takers obtain a profit of 30% of the total wagers, assuming that wagers are successfully collected on all 100 number-pairs. If a bet-taker collects ending wagers thrice a week, the total weekly profit will range from P450 (for a bet-taker collecting P5 wagers) to P9000 (for one collecting P100 wagers). In the typical P20 wager, the weekly profit for the bet-taker is at P1800, assuming full collection of wagers on an ending card.
This profit is supplemented by a share in the winnings handed over by the successful bettor, a practice known as balato. Typically, a winning bettor gives from 5% to 15% of her winnings to the bet-taker on whose ending card he/she placed the wager. As seen in Table 2, bet-takers’ earnings, inclusive of the balato, can be quite substantial. In fact, the take-home earnings of a typical P20 ending bet-taker who collects wagers thrice a week is between P2100 and P2400, assuming full collection of wagers. This is comparable to the earnings of a minimum-wage worker, whose 6-day gross income is P2796. 8
Bet-taker’s profits in ending. a .
All numbers are amounts in Philippine pesos (US$1 = PhP44.40).
Assumes that all 100 wagers are collected.
Based on fieldwork interviews and direct observation.
Assumes that a bet-taker collects wagers thrice a week.
The preceding discussion highlights the profitability of ending for bet-takers, and the potential windfall gains for bettors. The profitability of ending attracts potential bet-takers, whereas the excitement of becoming “lucky” in a fair game lures potential bettors. The popularity of the sport of basketball, and of the country’s televised professional league games, also contributes to making ending a widespread practice in many local communities.
However, the profitability of the inter-temporal exchange relations that occur in ending may only be realized if bettors have sufficient confidence that winnings can be successfully collected. In the extreme case, an unscrupulous bet-taker may withhold winnings by replacing a bettor’s name on the ending card or by claiming that the wager was not paid. In the likelier case, an apologetic bet-taker may give only part of the winnings with the excuse that the total collections are insufficient to cover the entire amount promised. Either way, when potential bettors perceive that the correct winnings would not be forthcoming, then this lack of confidence in the credibility of bet-takers erodes the attraction of ending as a fair game, and ending would not prosper.
Neither official government agencies nor informal local organizations are involved in the community practice of ending. By Philippine laws, all gambling activities are subject to government regulation. Operators are required to secure a permit from the relevant government offices and pay corresponding gaming taxes based on the value and number of wagers to be collected. Bet-takers’ profits and bettors’ winnings are likewise subject to taxation. Among forms of community-based gambling, cockfighting is heavily regulated; each fight must be duly registered and take place in officially designated cockpits. At the extreme end is the case of jueteng, for which the official policy is that of zero-tolerance due to the notoriety it received when it was linked to major corruption and illegal campaign finance scandals. 9 The games of cara cruz and sakla, which usually operate during wakes for the recently departed to help cover funeral-related costs, are largely tolerated, although occasionally, local police forces make token arrests.
In contrast, the community practice of ending escapes the attention of law enforcement agencies. Neither officially recognized nor aggressively banned, ending is largely treated as a private wager among friends or as micro-enterprises in the informal economy. Several factors possibly combine to explain this official ambivalence toward ending. First, the revenue gains from regulating ending, unlike cockfighting, may not compensate the enforcement costs and political capital to be expended in restricting such a locally popular game. Second, as an enterprise much smaller in scale than jueteng, ending has not been linked to corruption and illegal campaign finance, and so there is no popular movement supporting its regulation. And third, the decentralized nature of ending operations, in comparison to cara cruz and sakla, implies that no physical gathering of bettors and bet-takers is necessary, and so threats to local public order and safety are very minimal.
There are also no local organizations that establish and enforce norms in the practice of ending. 10 As noted earlier, ending is characterized by free entry for any interested bet-taker, with no organization regulating entry or conduct. An informal neighborhood association organizes various social activities that foster intra-community relations, and assists in the economic needs of members during periods of severe illness, death, and calamity. It assumes no role in adjudicating conflicts, including those that possibly emerge from ending.
Informal institutions for rule enforcement in ending
The absence of any role for either official public authorities or informal local organizations in enforcing claims on winnings in ending implies that there exist other non-organizational, informal features that induce sufficient confidence in the inter-temporal exchange relations between bettors and bet-takers. Central to the self-enforcing institutions of ending is the role of reputational information in providing cues about bet-takers’ likely future behavior. When potential ending bettors possess this information, bet-takers face the credible threat of non-patronage by informed bettors and become induced to honor commitments to deliver winnings. In the absence of any formal organization, a crucial element of the informal institutions of ending are prevailing social norms that serve as the mechanisms through which information on reputation is generated, transmitted, and acquired.
In particular, norms that are extrinsic to ending (i.e. norms that are structurally distinct from the basic rules of the ending game) provide the critical foundations for its community practice by facilitating the enforcement of the game’s actual rules. The central argument is that norms related to sharing one’s winnings to community members (balato) have the consequence of strengthening the ability of bettors to continue acquiring information from a wide network of informants about the behavior and history of different bet-takers. 11 In developing this argument, I first discuss the standards of reputation in the context of ending, the strategies used by bet-takers to signal compliance with these standards, and the role that community members play in directly observing bet-takers’ behavior. I then describe the balato system and its significance for how bettors acquire information on bet-takers’ reputations. Finally, I demonstrate the operation of this reputation-based mechanism by describing the dynamics and outcomes of instances in which bet-takers did not comply with standards of good reputation.
The core reputational information in ending is about a bet-taker’s adherence to rules about the immediate and complete delivery of winnings. Winnings are expected to be delivered without delay at the conclusion of a basketball game upon which ending wagers are placed, or at the conclusion of every quarter of the game in the per-quarter variant of ending. Winnings are also expected to consist of the full amount, even if a bet-taker is unsuccessful in collecting all wagers. In other words, bet-takers are expected to assume the full risk of non-collection of wagers, and not transfer this risk to winning bettors in the form of a reduced prize.
Natural and automatic compliance with these standards should not be taken for granted. Even if we assume that bet-takers are well-meaning, they may find themselves in situations in which their projected cash flows do not materialize on time for the expected delivery of winnings. In an urban working-class community, bet-takers attempt to balance their household expenses on a day-to-day basis, and may end up using initial collections to pay for various household needs as well as for overdue bills and loans. When an anticipated revenue source, such as a forthcoming salary, loan, or remittance from other family members, arrives late, then the bet-taker who has spent initial collections and becomes unable to deliver winnings develops a negative reputation. Bettors view ending wagers as an investment of their own limited resources toward a lucky windfall gain, and to maximize this investment, they search for appropriate reputation-based cues from various bet-takers, avoiding those they know (including relatives and immediate neighbors) to have previously engaged in delayed, incomplete, or non-delivery of a successful bettor’s winnings.
Successful bet-takers respond to this search for reputation-based cues by adopting visible strategies that directly transmit reputational information. The most basic strategy concerns the purchase and use of the “official” ending card to record all wagers. As previously noted, these commercially printed ending cards are widely available, and there is no authoritative organization that certifies a card, as compared to a blank sheet of paper, as the official document to record ending transactions. Yet, the ending card provides a semblance of legitimacy to the enterprise, so that even young children who collect the P5 wagers purchase and use this card. No member of the community would consider placing a wager with a bet-taker who records wagers on any other sheet of paper.
Second, bet-takers for the pricier P50 and P100 wagers attach an amount of money representing the full winnings at the back of the ending card. This action conveys the message that the complete winnings are already available even if the bet-taker is unable to collect on all wagers. Moreover, it demonstrates that even when certain bet-takers are recognized as “good” neighbors, the specific transactions of ending require distinct reputational signals.
Finally, successful bet-takers convey their trustworthiness by demonstrating reciprocal trust in potential bettors. When a bettor who is unable to make advance payment for a wager says “ilaban mo” (“let’s fight this wager”), then the bet-taker enters his/her name and wager on the ending card with the understanding that, win or lose, the wager would subsequently be paid, and that therefore, if the wager wins, the bettor is entitled to the complete winnings. In these cases, reputable bet-takers invite bettor confidence by showing their own willingness to assume the risk of possible loss, since some (though not many) bettors do not remit payment for a lost wager.
These signals are recognized by potential ending bettors who appropriately translate them into information about a bet-taker’s reputation. However, these strategies serve only to enhance reputation, and not to compensate for any ill-repute from previous misconduct. Ultimately, bettors depend on information about a bet-taker’s previous conduct to predict likely future adherence to rules about the delivery of winnings. Obviously, a bettor would not place any wager with a bet-taker who victimized him/her in the past. The question is how potential bettors would know about incidents involving other bettors, since victims often do not have any incentive to publicize their own negative experiences. Moreover, when communities are large, or when there are significant inter-community transactions (i.e. either the bettor or the bet-taker is not a member of the immediate community), then simple word-of-mouth mechanisms are insufficient to transmit accurate information in a timely manner to potential bettors.
The answer to this question lies in how community members are at an advantageous position to observe the behavior of various bet-takers, and in the incentives they possess to relay the relevant information about the reputation of bet-takers. Urban working-class communities are typically dense neighborhoods with narrow streets and adjacent houses. It is typical to see groups of community members lingering on benches outside their homes or in front of small variety stores. These provide ideal conditions for directly observing the behavior of various bet-takers as they take ending wagers and deliver the winnings to fortunate bettors.
Field observations of interactions among household members and neighbors who watch PBA basketball games on television revealed that conversations typically relate to ending results: “come on, make a three-point shot, so it becomes 7-7,” “guard him, let the score stay at 4-1,” “if only he made that final shot, it would have been 2-8,” and so on. Immediately after the basketball game, neighbors congregate outside their houses and continue to discuss how teams, and specific players, could have played differently to achieve a different final score. Noticeably, passers-by who failed to watch the game do not ask which team won, but rather, what the final score was.
These conversations not only indicate the prominence of ending, but also seek to ascertain the identity of the winning bettor. Immediate neighbors observe bet-takers approach the house of the fortunate bettor to deliver the winnings. They take note of bet-takers who do not arrive that very night. They also witness any argument that may emerge between the winning bettor and the bet-taker who fails to undertake complete delivery of winnings. In such cases, even if the erring bet-taker and the winning bettor reach a private agreement, the bet-taker has already suffered a dent in reputation among those who witness the incident.
A key to understanding the motivation of these witnesses in relaying information on the reputation of bet-takers is in the operation of norms about sharing one’s winnings to others, a practice known as the balato. Previously, it was noted that a winning bettor provides a 5%–15% balato to the bet-taker on whose ending card he/she placed a wager. Winning bettors are also widely expected to share their bounty to other community members. Typical amounts given to each person as balato are P20 or P50, depending on the amount of winnings and the relation to the winner. A token P10 or a generous P100 balato is also sometimes given. 12 When a bettor who is known to have an alaga (i.e. a protected pair of numbers which forms that person’s habitual wager) wins a “landslide” (i.e. multiple winnings on the same pair of numbers from multiple bet-takers), there is a spontaneous outburst of celebration, and people begin flocking toward the home of the winner to ask for balato.
It is argued here that the balato serves an important purpose as a form of advanced payment by bettors for information on bet-takers’ reputations. Community members freely share information about unfortunate ending incidents to bettors who are known to provide generous balato, in part because only winnings from reputable bet-takers ensure that a winning bettor would receive bounty that can then be shared. In turn, since bettors cannot foresee which community member would witness a defaulting bet-taker in the future, the balato is spread across as many community members as possible without overly diluting each person’s share. In time, the negative reputation of particular bet-takers may become local public knowledge through word-of-mouth. What the balato system helps ensure is that generous bettors acquire the information before the actual purchase of a wager, so that the wager is diverted toward more reputable bet-takers.
The balato thus represents the costs borne by bettors for acquiring relevant reputational information, and the balato system becomes the mechanism through which this information is transmitted to and acquired by bettors. 13 Informal computations based on data provided by interviewees yield estimates, shown in Table 3, about the aggregate cost of this information and the overall distribution of ending profits. The cost of information—as seen from the amount of balato shared by winning bettors to community members—varies across different wager values, but this cost as a proportion of the total wagers collected is fairly consistent at 30%–35%. From the perspective of the winning bettor, he/she distributes around 40%–50% of his/her winnings to his/her neighbors.
Distribution of profits in ending. a .
All numbers are amounts in Philippine pesos (US$1 = PhP44.40).
Based on 100 possible pairs of one-digit numbers.
Based on estimates generated in Table 2.
Total estimated amount based on author’s computations of interview-generated data.
The same data are shown graphically in Figure 1, which compares, for different wager values, the proportion of the total collection of wagers going to the bet-taker (i.e. the 30% profit on total collections plus the balato given by the winning bettor), to community members (i.e. the estimated total balato shared by the winning bettor), and the balance left to the bettor. The proportion of total wagers that is shared to community members is noticeably higher for the lower P5 and P10 wagers, and consequently, bettors are left with lower shares of their winnings. Bettors for the P20 and P50 wagers, although distributing higher total balato in monetary terms, typically pay a lower proportion of the total collections.
Distribution of total ending collections.
The pattern of distribution seen in Figure 1 may be interpreted as a means of maximizing the formation of a network of potential informants about bet-takers’ reputations. Given the amount of winnings as a constraint, successful bettors balance the number of informants that are needed with the amount that is acceptable to each informant so that the winning bettor is not perceived as stingy. For example, in the lowest P5 wager, the estimated total balato to community members is at P180 from winnings of P350. This total is allocated as P10 or P20 balato to around 12–15 individuals, with a few token P5 balato. On the other hand, a bettor for the typical P20 wager wins P1400, and distributes an estimated total balato of P600. His/her higher winnings lead community members to expect higher amounts (typically, P20 and P50, with a few P10 balato), but because he/she may not need more than 20 informants, he/she is still left with net winnings that represent a higher proportion of the total ending collections. 14
I do not imply that the acquisition of information is the intended and primary goal of distributing balato: only that it is an important by-product of the social interactions that occur in the community practice of ending. Indeed, the motivation for a social distribution of a share in one’s winnings may be due to social expectations from a collectivist culture or to individual expectations of reciprocity when it is someone else’s turn to be “lucky.” 15 Whatever motivates a specific individual to share his/her winnings, an important consequence is that the future ability of that individual to continue acquiring timely information about the reputation of bet-takers is greatly strengthened when that individual also develops a reputation as a generous balato-giver. In other words, the “network of informants” that emerges from the balato system is not an intentional informal organization of paid agents. Rather, existing norms on the balato provide community members a continuing interest in transmitting information about bet-takers to generous bettors, so that they also continue to receive a share of the bounty.
The reputation-based mechanism that undergirds the community practice of ending and that relies on norms about sharing one’s winnings thus produces an institutional equilibrium which sufficiently supports the inter-temporal exchange relations in ending. In equilibrium, interactions between bettors and bet-takers, and among community members, are governed by these institutions, with no incentive to deviate from established patterns of behavior. Bet-takers comply with immediate and complete delivery of winnings, and adopt additional strategies that cultivate their reputation. Bettors acquire the relevant information on a bet-taker’s reputation, and develop confidence in placing wagers with reputable bet-takers. Community members who witness interactions between bettors and bet-takers become important sources and conduits of reputational information.
Occasional deviations from an equilibrium may occur as a result of incomplete information, especially among new entrants, or because of a change in one’s circumstances that lead to a change in the profitability of alternative actions. During fieldwork, one such deviation was observed, and a few other previous incidents were relayed by interviewees. These instances demonstrate the operation of the informal institutions of ending.
In these instances of deviation, the reasons for a bet-taker’s default ranged from the apologetic (e.g. there was insufficient collection of wagers, there was an urgent family expense, the money was lost in a gamble, etc.) to the confrontational (e.g. the wager was not actually paid, it was someone else’s wager, etc.). In the ensuing argument between bettor and bet-taker, the bettor is powerless to enforce any claim and begrudgingly accepts either a partial payment with a promise to pay the balance at a future time, or the bet-taker’s reasons for withholding the winnings. Among the first to acquire information about the incident are habitual bettors who generously shared previous winnings. They then begin to withhold purchase of wagers from the bet-taker who has acquired ill-repute. The errant bet-taker’s demise is gradual but certain. In the subsequent basketball game, the bet-taker is unable to complete his/her ending card because only new, unwitting bettors and the bet-taker’s close friends who are willing to give him/her a second chance place and pay wagers. This leads to a downward spiral in which the bet-taker is once again unable to undertake immediate and complete delivery of winnings, resulting in further erosion of reputation, and thus further reduction of bettors for subsequent games, until the bet-taker is ultimately forced out of the market for ending.
Ending and self-governance institutions
The community practice of ending demonstrates how informal institutions facilitate rule enforcement in the absence of coercive organization. In ending, the relevant reputational information is produced through the balato system, which enables community members to acquire a regulatory interest in the inter-temporal exchange relations between bettors and bet-takers. As a result, community members transmit information about the reputation of bet-takers, so that bet-takers face the credible threat of being forced out of the market when they develop a negative reputation, and bettors become sufficiently confident that investments in wagers may ultimately pay off in a gamble that is perceived as fair.
More generally, ending reflects a “self-governance” situation in which social order is achieved through self-enforcing cooperative collective action (Calvert, 1998). Collective agreement on desired rules is feasible when groups are composed of homogenous members who have some similarity in tastes. And yet, a collective action problem may still occur in the enforcement of those agreed-upon rules. Individuals may not possess the incentives to bear the costs of enforcement, and in anticipation of others’ non-compliance, may themselves fail to abide by the rules. Findings from the community practice of ending provide important implications on four theoretical issues relevant to how informal institutions facilitate collective action toward rule enforcement in a self-governance system.
The first issue concerns the effect of group size on institutions that facilitate collective action. In the case of ending, the operation of the balato system in an urban working-class community depends on two factors related to group size: (1) the extent to which bettors need a network of informants to relay information about different bet-takers and (2) the sufficiency of the balato in motivating recipients to transmit this information. When a community is too small, then bettors’ personal knowledge of bet-takers’ histories make a separate reputation-based mechanism unnecessary. When a community is too large, then the network of informants generated through the balato system insufficiently covers the behavior of all bet-takers, since further expansion of the network will lead to a great reduction in either the net amount left with the winning bettor or the share received by each potential informant.
This suggests the importance of the cost of information as an intervening factor in the relationship between group size and the institutions that enable collective action. Theoretically, when the relevant information is costless, then collective action may be feasible regardless of group size. In the real-world, the cost of information may vary with group size, with important implications on how collective action is achieved. In small communities, collective action is feasible even in the absence of institutions because relatively costless information enables non-cooperators to be easily identified and sanctioned. In very large communities, constraints on the ability to cover the higher costs of information prevent successful collective action absent formal organization. The operation of the balato system in ending illustrates that it is in “medium-sized” communities where self-governance systems draw from informal institutional elements for generating information that leads to effective rule enforcement.
A second issue concerns the nature and role of selective incentives in inducing individual contributions toward collective action. When no organized structures exist, alternative mechanisms for generating selective incentives must be specified, including an examination of the willingness and capacity of those who are to cover the costs of providing these incentives. In ending, selective incentives are triggered by norms about the social distribution of winnings, which offer community members the private inducement to relay relevant information in a timely manner, and thus enable bettors to acquire information on bet-takers’ reputations. Compliance of winning bettors with these norms on sharing depends crucially on their perception of the resulting benefits (and harms). In particular, bettors accept net winnings of 40%–50%, since the alternative may be zero in the event that the wager is placed on non-reputable bet-takers. The practice also suggests that winning bettors essentially valuate previous lost wagers as sunk costs that do not need to be recovered, and so these past losses do not materially affect decisions to socially distribute one’s current winnings.
The centrality of the balato system in generating selective incentives suggests that social norms are crucial elements in the informal institutions that support the enforcement of rules in a self-governance system. Social norms may be distinguished between those that are structurally intrinsic to an activity being regulated and those that are extrinsic to it. Often, social norms that are examined in the context of self-governance are those that are intrinsically related to a particular collective action problem, such as norms on cooperative behavior regarding “appropriate” resource use (e.g. how much fish to catch, trees to cut, communal water to draw, etc.) and “just” individual contributions (e.g. uniform fees, fees based on usage or land size, fees based on capacity to pay, etc.; see Crawford and Ostrom, 1995). The community practice of ending demonstrates that norms that are structurally distinct and extrinsic to a specific collective action problem may still serve to address that problem. Social norms are often polyvalent and lead to multiple intended and unintended consequences, so that norms governing one type of behavior (e.g. sharing resources) also affect other types of behavior (e.g. complying with rules of exchange). An important step in tracing how extrinsic social norms sustain self-governance systems is the identification of the different private benefits that emerge from individual compliance with those social norms.
The third issue concerns the effects of establishing formal structures that supplant institutionalized informal rules. Consider the scenario in which government officially enforced the claims of ending winners and imposed a 20% tax on winnings. This 20% tax rate may seem to be an improvement over the costliness of the reputation-based mechanism where successful bettors socially distribute 50% of their winnings. However, when real-world contexts are considered, some adverse consequences of formalization become apparent. First, current weaknesses in state-based enforcement institutions imply that bettors would still seek some form of private enforcement of claims at an additional cost. Second, since norms governing the balato are extrinsic to the game of ending, winning bettors would still undertake a social distribution of a portion of their winnings, with both bettors and community members left with lower net amounts. And third, when norms related to the balato system change over the long term as the viability of sharing one’s winnings is reduced, then the redistributive consequences of ending in working-class communities become endangered.
This hypothetical scenario suggests some ill-effects of disturbing the institutional equilibrium inherent in self-governance systems. Self-governance systems are “complex adaptive systems” in which patterns of interactions emerge from local knowledge and experience, and adjust based on the accumulation of that knowledge and experience (Ostrom, 1999). State-led interventionist projects that disregard local practices, no matter how well-intentioned, may lead to disastrous results (Scott, 1998; Taylor, 1987). When informal institutions already promote local community objectives successfully, then the introduction of formal structures becomes unnecessary. Worse, it may disrupt established patterns of social interactions to the detriment of the communities involved.
Finally, while social norms are relatively stable, they also evolve over time, with important implications on the sustainability of self-governance systems. In the community practice of ending, fieldwork observations revealed instances of collusion between select bettors and bet-takers in keeping a wager secret to avoid the distribution of balato. However, when collusion is successful, a person becomes perceived as no longer placing ending wagers. Information on the reputation of various bet-takers no longer reaches that person, so that any future wagers by the conniving bettor becomes limited to the particular bet-taker with whom he/she colluded.
It is premature to assess whether this instance represents unique, infrequent deviations from equilibrium expectations, or if it reflects the seeds of norm changes in the community. If it is the latter, and the social sharing of individual winnings becomes a less-valued norm over time, then the reputation-based mechanism that depends on these social norms will become undermined. In this situation, either the community develops alternative, perhaps organization-based, solutions to the enforcement problem, or community-based ending ceases to prosper.
Conclusion and suggested further research
Two arguments are commonly advanced that underemphasize the role of institutions in social interactions such as those related to ending. The first argument concerns the role of repeated interactions, and the future income stream from continuous cooperative behavior, as structural elements that sufficiently provide inducements to safeguard one’s reputation (Axelrod, 1984; Bendor and Swistak, 1997; Taylor, 1987). A second argument pertains to high degrees of trust and social capital as cultural factors that facilitate cooperation in communities (Putnam, 1993; Taylor, 1982).
Arguments related to the structure of markets or the social capital underpinning communities may indeed be part of the overall account of the inter-temporal exchange relations that take place in ending. However, an institutional account is still necessary. Human interactions—whether in social, political, or economic settings—depend on the availability of information about the nature of a transaction and the characteristics of the party with whom one transacts. Real-world limitations in the ability to generate information and the costliness of the information that is generated drive the necessity of rule enforcement, and ultimately, the institutions that provide this enforcement (North, 1990). Social capital may constitute an important component of this institutional framework by providing norms that promote high levels of trust among neighbors in a community (Boix and Posner, 1996). Yet, an argument that utilizes the concept of social capital also requires identifying the existing mechanisms that generate trust among persons and serve to maintain this trust (Farrell and Knight, 2003; Levi, 1996). Moreover, when a community is large, or when a significant number of exchange relations occur between those considered to be “inside” and those “outside” a “community,” then not everyone is a “neighbor,” and not all individuals become sufficiently aware of others’ previous conduct. A focus on institutional elements deepens our understanding of how social relations may be self-regulated by identifying the informal rules that govern interactions, and by specifying the informal mechanisms that serve to enforce those rules in the absence of any organizational intervention, including that from government.
In this first systematic exploration of the community practice of ending, my main goal was to examine why and how it thrives in the absence of any organization-based enforcement of rules regarding bettors’ claims on winnings. In the absence of coercive enforcement, I looked at how regulatory interests are embedded in the informal institutions that facilitate self-enforcement of rules. I found that social norms related to the balato system provide the underlying basis for a self-enforcing reputation-based mechanism that transmits the relevant information about bet-taker behavior, produces compliance by bet-takers on rules about the immediate and complete delivery of winnings, and ultimately generates bettor confidence in engaging in inter-temporal exchange relations with bet-takers. I then explored general insights about collective action in self-governance systems that may be extracted from the community practice of ending, and proposed that self-enforcement of rules may occur in a medium-sized community through extrinsic social norms that provide sufficient private incentives for generating the information that leads to rule compliance.
Three main directions for future research are suggested. First, this institutional account is not intended as a comprehensive investigation of the community practice of ending. Many aspects of ending remain either assumed or unaddressed, including the motivations for and the psychology of gambling in working-class communities, the factors that affect government’s non-enforcement of gambling regulations, and the sources of norms regarding the social distribution of winnings. Research on these issues would allow an in-depth examination of broader concerns in political economy related to who benefit and who lose in community-based gambling schemes.
Second, the operation and dynamics of self-governance institutions deserve a more extensive theoretical treatment. Where self-governance relies on the availability of information, I suggested that the cost of information is an important factor that intervenes in the relationship between group size and the institutions supporting collective action. Likewise, I suggested that the multidimensionality of social norms that prevail in a community, and the unintentional effects of extrinsic social norms in generating selective incentives, may help us better understand successful collective action in self-governance systems. These propositions merit a more formal theoretical treatment, including the impacts of norm changes on the sustainability of self-governance, and the factors that produce these norm changes.
And third, additional research on community-based gambling can offer substantial insights on institutions and institutional diversity. Earlier in this article, I identified ending as only one type of community-based gambling found in many local areas in the Philippines. A comparison of the different types of community-based gambling can help uncover the mechanisms underlying the variety of institutional forms that are generated in support of these different gambling schemes. For example, the officially banned jueteng persists in many local communities in the midst of weak state enforcement institutions. In contrast to the informal reputation-based mechanism in ending, jueteng operators organize highly centralized and hierarchical structures to enforce both the collection of wagers and the delivery of winnings by agents. Why these hierarchical organizations developed, how they serve to enforce the rules of jueteng, and how they co-exist with state institutions that purportedly aim to dismantle them are important questions ripe for institutional analysis.
Institutions are pervasive in organized societies, and they take on a variety of forms, from the self-governance systems evinced in community-based ending to the coercive apparatus of centralized and hierarchical states. They comprise multiple elements, formal and informal in nature. They generate both positive and negative consequences, intended or unintended, in societies in which they operate. Social scientists have long been pre-occupied with the complex questions of how institutions emerge, operate, and evolve over time. If societies are communities writ large, then the mundane activities in communities, such as community-based gambling, provide an accessible window for systematically observing these complex social realities.
Footnotes
Acknowledgements
I gratefully acknowledge helpful comments and suggestions from Andrew Sobel, Daniel O’Neill, Ronald Holmes, Jane Capacio, and an anonymous reviewer.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.