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Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders' Coalition

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Abstract

This paper presents an economic institution which enabled eleventh-century traders to benefit from employing overseas agents despite the commitment problem inherent in these relations. Agency relations were governed by a coalition--an economic institution in which expectations, implicit contractual relations, and a specific information-transmission mechanism supported the operation of a reputation mechanism. Historical records and a simple game-theoretical model are used to examine this institution. The study highlights the interaction between social and economic institutions, the determinants of business practices, the nature of the merchants' law, and the interrelations between market and nonmarket institutions. Copyright 1993 by American Economic Association.
... Changes in governance mechanisms can trigger institutional change and vice versa, e.g., a shift from community-trading to trading with complete strangers creates pressure to define and put into place institutions that enforce private property rights and contracts beyond one's community (Brousseau 2008;Greif 1993). ...
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An important part of the criticism raised against the adoption of advanced contract automation relates to the inflexibility of automated contracts. Drawing on rational choice theory, we explain why inflexibility, when seen as a constraint, can ultimately not only enhance welfare but also enable cooperation on algorithmic markets. This illuminates the need to address the inflexibility of contracting algorithms in a nuanced manner, distinguishing between inflexibility as a potentially beneficial constraint on the level of transactions, and inflexibility as a set of systemic risks and changes arising in markets employing inflexible contracting algorithms. Using algorithmic trading in financial markets as an example, we show how the automation of finance has brought about institutional changes in the form of new regulation to hedge against systemic risks from inflexibility. Analyzing the findings through the lens of new institutional economics, we explain how widespread adoption of contract automation can put pressure on institutions to change. We conclude with possible lessons that algorithmic finance can teach to markets deploying algorithmic contracting.
... 2, supports our structural narrative on the origin of multiple republican "treatments" and differences in observed inclusiveness. Historically, the emergence of the rule of law has been connected to the rise of merchant classes and the associated curbing of the extractive power of the landed (feudal) nobility (e.g., De Long & Shleifer, 1993;Acemoglu et al., 2005) and through the practice of more effective private-order bilateral contract enforcement (see, e.g., Greif, 1993). Our narrative qualifies these canonical arguments. ...
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... 39 Membership in a community by itself is not a guarantee of anything -membership must imply a certain kind of 37 Technically, only the initiated members of the khalsa have explicitly sworn to maintain these articles of faith, but a recent comprehensive survey of religion in India (Pew Research Center, 2021) reports that about 60 percent of Sikh men and 90 percent of Sikh women observe the practice of uncut hair, much greater than the percentage who are formal members of the khalsa. 38 The idea of trustworthiness within a group through membership of the group and the resulting economic benefits for managing far-flung trading networks was developed by Avner Greif (1993) in the context of North Africa's Maghribi clans. Greif also argued that kinship networks had limits, and could not compete with more "modern" forms of formal contracting, such as those used by the Genoese in the same time period and geography as the Maghribis. ...
... Göçün transnasyonel veya yereldeki sosyal ve etnik ağlar üzerinden kalkınmaya katkısı özellikle iki yolla gerçekleşmektedir. Birincisi, uluslararası ticaret ağlarının göç veren ülke ile göç alan ülke arasında güçlenmesiyle (Greif 1993); ikincisi ise işçi dövizlerinin göç veren ülkelerde kalkınma odaklı kullanılmasıyla (de Haas 2005) gerçekleşmektedir. ...
... Les arrangements contractuels autour du foncier mettent en rapport des propriétaires fonciers (preneurs) et des tenanciers « sans-terre » ou dont la superficie est insuffisante (Colin, 2003). Ces arrangements contractuels sont entendus au sens de règles du jeu débattues et déterminées par des agents économiques, qui donnent naissance à de nouvelles procédures, censées les réguler (Favereau, 1989;Dubois, 2001 (Durkheim, 1975;North, 1990;Greif, 1993;Williamson 2000). ...
... Alesina and La Ferrara (2005) argue that homogeneity can affect economic outcomes in a positive way as individuals prefer to transact with their own group members in the case of market imperfections. To illustrate this argument, Greif (1993) provides examples of guild formation on ethnic lines during Middle Ages to overcome imperfections in the market. Moreover, in societies where legal contracts are not easily worked out or are not enforced, individuals prefer to transact within their groups, as behaviour can be monitored within community norms (La Ferrara, 2003). ...
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