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History Lessons: The Birth of Impersonal Exchange: The Community Responsibility System and Impartial Justice

  • Avner Greif

This paper describes the premodern European institution that supported impersonal exchange, in which a merchant's decision to exchange is independent either of expectations of future exchange with the same partner or of knowledge of that partner's past conduct or the ability to report misconduct to future trading partners. Economists know surprisingly little about how institutions evolved to support impersonal exchange. The standard story asserts that in the early stages of market development, exchange tends to be personal and is supported by reputation; then, after an economy becomes sufficiently large, society establishes centralized and impartial courts that, by the threat of coercively imposed sanctions, enable widespread impersonal exchange. But during the late medieval period, there was no centralized legal system capable of effectively supporting impersonal exchange among merchants from different localities; and, although local courts existed throughout Europe, they were not impartial dispensers of justice but were attentive to local interests and were controlled by the local elite. This paper describes how a particular institution, the "community responsibility system," nevertheless enabled European merchants to commit to keep their contractual obligations in impersonal exchange from the late medieval to the modern period.

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Article provided by American Economic Association in its journal Journal of Economic Perspectives.

Volume (Year): 20 (2006)
Issue (Month): 2 (Spring)
Pages: 221-236

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Handle: RePEc:aea:jecper:v:20:y:2006:i:2:p:221-236
Note: DOI: 10.1257/jep.20.2.221
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  1. Besley, T. & Coate, S., 1991. "Group Lending, Repayment Incentives And Social Collateral," Papers 152, Princeton, Woodrow Wilson School - Development Studies.
  2. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-48, June.
  3. Avner Greif, 2002. "Institutions and Impersonal Exchange: From Communal to Individual Responsibility," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 158(1), pages 168-, March.
  4. Greif, Avner & Milgrom, Paul & Weingast, Barry R, 1994. "Coordination, Commitment, and Enforcement: The Case of the Merchant Guild," Journal of Political Economy, University of Chicago Press, vol. 102(4), pages 745-76, August.
  5. Avner Greif, 2006. "Family Structure, Institutions, and Growth: The Origins and Implications of Western Corporations," American Economic Review, American Economic Association, vol. 96(2), pages 308-312, May.
  6. Edward J Green & Robert H Porter, 1997. "Noncooperative Collusion Under Imperfect Price Information," Levine's Working Paper Archive 1147, David K. Levine.
  7. Timothy W. Guinnane, 1997. "Cooperatives as Information Machines: German Rural Credit Cooperatives, 1883-1914," Discussion Papers 97-20, University of Copenhagen. Department of Economics.
  8. Greif, Avner, 2000. "The fundamental problem of exchange: A research agenda in Historical Institutional Analysis," European Review of Economic History, Cambridge University Press, vol. 4(03), pages 251-284, December.
  9. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-50, October.
  10. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 857-882, December.
  11. Volckart, Oliver, 2004. "The economics of feuding in late medieval Germany," Explorations in Economic History, Elsevier, vol. 41(3), pages 282-299, July.
  12. Bouman, F. J. A., 1995. "Rotating and accumulating savings and credit associations: A development perspective," World Development, Elsevier, vol. 23(3), pages 371-384, March.
  13. A. Meltzer & Peter Ordeshook & Thomas Romer, 1982. "Introduction," Public Choice, Springer, vol. 39(1), pages 1-3, January.
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