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Communal Responsibility and the Coexistence of Money and Credit Under Anonymous Matching

Author

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  • Lars Boerner
  • Albrecht Ritschl

Abstract

Communal responsibility, a medieval institution studied by Greif (2006), supported the use of credit among European merchants in the absence of modern enforcement technologies. This paper shows how this mechanism helps to overcome enforcement problems in anonymous buyer/seller transactions. In a village economy version of the Lagos and Wright (2005) model, agents trading anonymously in decentralized markets can be identified by their citizenship and thus be held liable for each other. Enforceability within each village's centralized afternoon market ensures collateralization of credit in decentralized markets. In the resulting equilibrium, money and credit coexist in decentralized markets if the use of credit is costly. Our analysis easily extends itself to other payment systems like credit cards that provide a group identity to otherwise anonymous agents.

Suggested Citation

  • Lars Boerner & Albrecht Ritschl, 2010. "Communal Responsibility and the Coexistence of Money and Credit Under Anonymous Matching," CEP Discussion Papers dp1034, Centre for Economic Performance, LSE.
    • Handle: RePEc:cep:cepdps:dp1034
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    Cited by:

    1. Boerner, Lars & Ritschl, Albrecht, 2008. "The economic history of sovereignty: communal responsibility, the extended family, and the firm," Economic History Working Papers 22307, London School of Economics and Political Science, Department of Economic History.
    2. Maciejczak, Mariusz, 2015. "Will the institution of coexistence be re-defined by TTIP?," GMCC-15: Seventh GMCC, November 17-20, 2015, Amsterdam, the Netherlands 211478, International Conference on Coexistence between Genetically Modified (GM) and non-GM based Agricultural Supply Chains (GMCC).
    3. repec:hum:wpaper:sfb649dp2010-061 is not listed on IDEAS

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    Keywords

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    JEL classification:

    • E41 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Demand for Money
    • D51 - Microeconomics - - General Equilibrium and Disequilibrium - - - Exchange and Production Economies
    • N2 - Economic History - - Financial Markets and Institutions

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