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

  • Dessi, Roberta
  • Piccolo, Salvatore

We develop a theory of the emergence of merchant guilds as an efficient mechanism to foster cooperation between merchants and rulers, building on the natural complementarity between merchants’ market trading and mutual monitoring. Unlike existing models, we focus on local merchant guilds, rather than alien guilds, accounting for the main observed features of their behavior, internal organization and relationship with rulers. Our model delivers novel predictions about guilds’ size, membership restrictions, and their welfare implications. Moreover, it identifies the main channels through which the guilds’ social capital influenced their ability to cooperate effectively with rulers. As we argue, the available historical evidence offers support for our theory. We also extend the model to analyze the key trade-offs faced by rulers in choosing whether to grant recognition to one or multiple guilds. This provides a rationale for the establishment of both local and alien merchant guilds, helping us to understand the observed distribution of guilds and their characteristics.

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 529.

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Date of creation: Jul 2009
Date of revision: Jun 2013
Handle: RePEc:ide:wpaper:9571
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  5. Ran Abramitzky, 2008. "The Limits of Equality: Insights from the Israeli Kibbutz," The Quarterly Journal of Economics, MIT Press, vol. 123(3), pages 1111-1159, August.
  6. Alberto Alesina & Eliana La Ferrara, . "Participation in Heterogeneous Communities," Working Papers 151, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  7. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2009. "The Right Amount of Trust," Economics Working Papers ECO2009/33, European University Institute.
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  9. Alberto Alesina & Eliana La Ferrara, 2004. "Ethnic Diversity and Economic Performance," Development Working Papers 193, Centro Studi Luca d\'Agliano, University of Milano.
  10. Rotemberg, Julio J & Saloner, Garth, 1986. "A Supergame-Theoretic Model of Price Wars during Booms," American Economic Review, American Economic Association, vol. 76(3), pages 390-407, June.
  11. 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.
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  14. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May.
  15. 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.
  16. Pranab Bardhan., 1996. "The Nature of Institutional Impediments to Economic Development," Center for International and Development Economics Research (CIDER) Working Papers C96-066, University of California at Berkeley.
  17. Dessi, R. & Ogilvie, S., 2004. "Social Capital and Collusion: The Case of Merchant Guilds," Cambridge Working Papers in Economics 0417, Faculty of Economics, University of Cambridge.
  18. Alesina, Alberto & La Ferrara, Eliana, 2002. "Who trusts others?," Journal of Public Economics, Elsevier, vol. 85(2), pages 207-234, August.
  19. 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.
  20. Reynolds, Robert L., 1945. "In Search of a Business Class in Thirteenth-Century Genoa," The Journal of Economic History, Cambridge University Press, vol. 5(S1), pages 1-19, December.
  21. Lopez, Robert Sabatino, 1943. "European Merchants in the Medieval Indies: The Evidence of Commercial Documents," The Journal of Economic History, Cambridge University Press, vol. 3(02), pages 164-184, November.
  22. Alesina, Alberto & La Ferrara, Eliana, 2005. "Ethnic Diversity and Economic Performance," Scholarly Articles 4553005, Harvard University Department of Economics.
  23. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
  24. Spagnolo, Giancarlo, 1999. "Social relations and cooperation in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 1-25, January.
  25. Joseph E. Harrington & Myong-Hun Chang, 2009. "Modeling the Birth and Death of Cartels with an Application to Evaluating Competition Policy," Journal of the European Economic Association, MIT Press, vol. 7(6), pages 1400-1435, December.
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