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Two is Company, N is a Crowd? Merchant Guilds and Social Capital

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Author Info
Roberta Dessì (Toulouse School of Economics (GREMAQ and IDEI) and CEPR)
Salvatore Piccolo () (Toulouse School of Economics, University of Naples Federico II and CSEF)

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Abstract

We develop a theory of the emergence of merchant guilds as an efficient mechanism to implement collusion among merchants and rulers, building on the natural complementarity between merchants’ market trading and mutual monitoring. Unlike the seminal paper in the existing literature, we focus primarily on the far more numerous local merchant guilds, rather than alien guilds, accounting for the main observed features of their behavior, their internal organization, and their relationship with rulers. Our model delivers novel predictions about guild size, membership restrictions, and their welfare implications. It also identifies the main channels through which the guilds’ social capital influenced their ability to collude effectively with rulers. As we show, the available historical evidence offers ample support for our theory, shedding new light on the role of the guilds’ social capital. We then analyze the key trade-offs faced by rulers in choosing whether to grant recognition to one or multiple guilds. This helps us to understand the observed distribution of guilds, and provides a rationale for the establishment of both local and alien merchant guilds.

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Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 202.

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Date of creation: 01 Sep 2008
Date of revision: 12 Jul 2009
Handle: RePEc:sef:csefwp:202

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Related research
Keywords: merchant guild; social capital; collusion; political economy; trade; taxation;

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  2. Pranab Bardhan, 1996. "The Nature of Institutional Impediments to Economic Development," Center for International and Development Economics Research, Working Paper Series 1041, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley. [Downloadable!]
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  3. Joel Sobel, 2002. "Can We Trust Social Capital?," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 139-154, March. [Downloadable!] (restricted)
  4. Chen, Zhijun & Rey, Patrick, 2007. "On the Design of Leniency Programs," IDEI Working Papers 452, Institut d'Économie Industrielle (IDEI), Toulouse. [Downloadable!]
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  9. Alberto Alesina & Eliana La Ferrara, 2005. "Ethnic Diversity and Economic Performance," Journal of Economic Literature, American Economic Association, vol. 43(3), pages 762-800, September. [Downloadable!] (restricted)
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  10. Oliver Volckart & Antje Mangels, 1999. "Are the Roots of the Modern Lex Mercatoria Really Medieval?," Southern Economic Journal, Southern Economic Association, vol. 65(3), pages 427-450, January.
  11. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June. [Downloadable!]
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  12. Knack, Stephen & Keefer, Philip, 1997. "Does Social Capital Have an Economic Payoff? A Cross-Country Investigation," The Quarterly Journal of Economics, MIT Press, vol. 112(4), pages 1251-88, November.
  13. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May. [Downloadable!] (restricted)
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  14. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August. [Downloadable!] (restricted)
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  15. Joseph E. Harrington, Jr, 2006. "Modelling the Birth and Death of Cartels with an Application to Evaluating Antitrust Policy," Economics Working Paper Archive 532, The Johns Hopkins University,Department of Economics. [Downloadable!]
  16. Stiglitz, Joseph E, 1990. "Peer Monitoring and Credit Markets," World Bank Economic Review, Oxford University Press, vol. 4(3), pages 351-66, September.
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  18. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 811-846, August. [Downloadable!] (restricted)
  19. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October. [Downloadable!] (restricted)
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  21. Roberta Dessi & Sheilagh Olgivie, 2003. "Social Capital and Collusion: The Case of Merchant Guilds," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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