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Coordination, Commitment, and Enforcement: The Case of the Merchant Guild

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Coordination, Commitment, and Enforcement: The Case of the Merchant Guild

Abstract

The authors interpret historical evidence in light of a repeated-game model to conclude that merchant guilds emerged during the late medieval period to allow rulers of trade centers to commit to the security of alien merchants. The merchant guild developed the theoretically required attributes, secured merchants' property rights, and evolved in response to crises to extend the range of its effectiveness, contributing to the expansion of trade during the late medieval period. The authors elaborate on the relations between their theory and the monopoly theory of merchant guilds and contrast it with repeated-game theories that provide no role for formal organization. Copyright 1994 by University of Chicago Press.
... It is from these observations that NIE developed its theoretical framework as a way to understand exactly why certain modes of economic organization developed and changed, and why some were more successful than others. This theoretical toolbox has been used to understand how longdistance trade and credit relations were developed and entertained; the emergence and presence of powerful merchant guilds; the role of fairs; the balancing of power between sovereign rulers, local elites and merchant guilds (Greif 1993(Greif , 2002(Greif , 2006Greif, Milgrom and Weingast 1994); and so onall from the basic assumption of agents' economic rationality bounded by the institutional framework. In the same way, the relative economic and political success of the late iron age Scandinavians can probably not be attributed solely to their access to raw materials and technology. ...
... The collective provides the individual with a certain identity, and each of its members is assumed to follow a certain set of rules that is typical for this collective. Examples of such collectives in historical research include medieval merchant guilds and larger cartels such as the Hanseatic League (Greif, Milgrom and Weingast 1994) and the Maghribi traders (Greif 1993). ...
... It will punish wrongdoers and help the individual agent to impose the rules, making threats of enforcement credible. Several historical episodes also show how such collectives as the Hanseatic League and the Maghribi traders enforced their institutional framework on other collectives, in cases when their members were the victims of frauds, robberies and similar at the hands of these other collectives (Greif 1993;Greif, Milgrom and Weingast 1994). In some cases, these collectives managed to create enclaves or territories in foreign kingdoms that were recognized as following their own institutional frameworkthat is, in a territory which was controlled by another ruler and, thus, followed another institutional framework. ...
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In this paper, we argue that closer engagement with the field of new institutional economics (NIE) has the potential to provide researchers with a new theoretical toolbox that can be used to study economic and social practices that are not readily traceable in material culture. NIE assumes that individual actions are based on bounded rationality and that the existence of rules (institutions) and their enforcement – the institutional framework – influences agents’ actions by providing different incentives and probabilities for different choices. Within this theoretical framework, we identify a number of concepts, such as collective identity and mobile jurisdictions , that seem to fit what we know of Viking age economic systems. In applying these models to the available archaeological and textual data, we outline the ways in which further research could provide a new understanding of economic interaction within a rapidly evolving context of diaspora and change.
... Once part of corporate organisations, and to benefit from their institutional structure and monopolistic powers, merchants were expected to follow its rules, meet its behavioural expectation, and commit to working for the common good of all its members (Greif, Milgrom and Weingast 1994). In England, then, the professional role of "mere merchants" ...
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In the sixteenth and seventeenth centuries, England's trade and empire took place in global spaces that were home to a plethora of distinct cultures, peoples, and ways of doing business. To overcome this challenge, English merchants developed a range of institutional innovations designed to manage diversity and facilitate their participation in these complex international environments. Central to these practices were corporate forms of organisation that institutionalised exclusion as means of managing diversity, at home and abroad. This article examines how these exclusive practices developed and how they contributed to the emergence of systemic inequalities within the emerging British empire. Resumo Nos séculos XVI e XVII, o comércio e o império ingleses desenvolveram-se a uma escala global, em espaços caracterizados por diversidade cultural, populacional e de práticas de negócio. Os mercadores ingleses responderam aos desafios apresentados por estas diversidades através do desenvolvimento de uma série de inovações institucionais, de forma a administratrar, controlar e facilitar a participação do grupo num contexto internacional de negócios. Uma das respostas institucionais aos desafios impostos pelas várias diversidades for o desenvolvimento de formas corporativas de organização do negócio, as quais institucionalizaram o fenómeno de exclusão como forma de controlo e administração da diversidade, em Inglaterra e no estrangeiro. Este artigo examina a forma de desenvolvimento destas práticas e a forma como as mesmas contribuiram para a emergência de um sistema de desigualdade no império britânico. Palavras Chave Inglaterra no período moderno, Império britânico, Corporativismo, Negócios,
... We also see the appearance of private order institutions to solve exchange dilemmas, whose order-creating mechanism is to use reputation to link past behaviour and the future payoff of individuals, thus generating intertemporal incentives through indirect reciprocity (Milgrom et al., 1990;Clay, 1997). With respect to the production of common-pool and public resources, in villages, where most primary production takes place, these resources can be managed by the formation of self-policing communities that enforce the maintenance of cooperation by individual-to-organisation reciprocity and active communication between group members (Ostrom, 1990;Milgrom et al., 1990;Gardner & Ostrom, 1991;Ostrom et al., 1994;Greif et al., 1994;Greif, 2006). These corporate structures involve local villages of farmers as well as market towns and guilds (Christian et al., 2014). ...
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... We also see the appearance of private order institutions to solve exchange dilemmas, whose ordercreating mechanism is to use reputation to link past behaviour and future payoff of individuals, thus generating intertemporal incentives through indirect reciprocity (Milgrom et al., 1990;Clay, 1997). With respect to the production of common-pool and public resources, in villages, where most primary production takes place, these resources can be managed by the formation of self-policing communities that enforce the maintenance of cooperation by individual-toorganization reciprocity and active communication between group members (Ostrom, 1990;Milgrom et al., 1990;Gardner and Ostrom, 1991;Ostrom et al., 1994;Greif et al., 1994;Greif, 2006). These corporate structures involve local villages of farmers as well as market towns and guilds . ...
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This paper surveys five human societal types -- mobile foragers, horticulturalists, pre-state agriculturalists, state-based agriculturalists, and liberal democracies -- from the perspective of three core social problems faced by interacting individuals: coordination problems, social dilemmas, and contest problems. We characterize the occurrence of these problems in the different societal types and enquire into the main force keeping societies together given the prevalence of these. To address this, we consider the social problems in light of the theory of repeated games, and delineate the role of intertemporal incentives in sustaining cooperative behaviour through the reciprocity principle. We analyze the population, economic and political structural features of the five societal types, and show that intertemporal incentives have been adapted to the changes in scope and scale of the core social problems as societies grew in size. In all societies, reciprocity mechanisms appear to solve the social problems by enabling lifetime direct benefits to individuals for cooperation. Our analysis leads us to predict that as societies increase in complexity, they need more of the following four features to enable the scalability and adaptability of the reciprocity principle: nested grouping, decentralized enforcement and local information, centralized enforcement and coercive power, and formal rules.
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