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

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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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    References listed on IDEAS

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    10. Ping He & Lixin Huang & Randall Wright, 2005. "Money And Banking In Search Equilibrium," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 46(2), pages 637-670, May.
    11. Börner, Lars & Hatfield, John William, 2010. "The economics of debt clearing mechanisms," Discussion Papers 2010/27, Free University Berlin, School of Business & Economics.
    12. Freeman, Scott & Huffman, Gregory W, 1991. "Inside Money, Output, and Causality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(3), pages 645-667, August.
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    Cited by:

    1. Lars Boerner & Albrecht Ritschl, 2009. "The Economic History of Sovereignty: Communal Responsibility, the Extended Family, and the Firm," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 165(1), pages 99-112, March.
    2. Basteck, Christian & Daniëls, Tijmen R., 2010. "Every symmetric 3 x 3 global game of strategic complementarities is noise independent," SFB 649 Discussion Papers 2010-061, Humboldt University Berlin, Collaborative Research Center 649: Economic Risk.
    3. Börner, Lars & Hatfield, John William, 2010. "The economics of debt clearing mechanisms," Discussion Papers 2010/27, Free University Berlin, School of Business & Economics.
    4. 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).
    5. repec:hum:wpaper:sfb649dp2010-061 is not listed on IDEAS

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    More about this item

    Keywords

    Communal responsibility; anonymous matching; money demand; credit; bills of exchange;
    All these keywords.

    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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