Tonight on Stossel (FOX Business, 9pm ET tonight) my friend Ed Stringham will talk about  how online dispute resolution, which everyone assumed would require government involvement, occurs almost entirely in the absence of government.

PayPal transfers billions of dollars for countless members. They assumed they’d need a lot of government assistance in tracking crooks. But as Stringham points out:

They faced fraudsters from all over the world. They turned to the FBI. But the FBI had no idea who these people were…. [PayPal] developed a private fraud detection system, where they used computers to say, ‘This might be fraudulent,’ and then it would send it to a human to investigate that.

Government is also ill suited to handle problems likely to arise on eBay. What to do if someone fails to deliver a product, or delivers a product that does not match its description? Want to wait for that to wind its way through the government’s monopoly legal system?

Stringham observes that eBay “and other groups developed private reputation mechanisms. When you go onto eBay, you know there’s a 99 percent chance that you’re going to get the goods delivered.”

Read Stossel’s column “No Regulation? No Problem.”