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Complementarities between Long-Term Relationships and Short-Term Contracts: Case of Early Modern Japan

Author

Listed:
  • Hideshi Itoh

    (Waseda Business School, Waseda University, JAPAN)

  • Takashi Shimizu

    (Graduate School of Economics, Kobe University, JAPAN)

  • Yasuo Takatsuki

    (Research Institute for Economics and Business Administration, Kobe University, JAPAN)

Abstract

This paper examines the interaction between formal and relational enforcement in early modern Japan, focusing on financial relationships between Daimyo (regional lords) and merchants. Due to class distinctions, loans from merchants to Daimyo lacked legal enforceability, while contracts among merchants were court-enforceable. Some merchants built long-term self-enforcing relationships with Daimyo (becoming Tachiiri), whereas others provided short-term formal loans to underfunded Tachiiri. We develop a model with two markets—one that matches Daimyo with merchants, and the other that matches underfunded Tachiiri with lending merchants—and identify conditions for their co-existence in equilibrium. The analysis shows that merchants value becoming Tachiiri for long-term gains, and that the opportunities for short-term formal lending enhance the sustainability of relational contracts between Daimyo and Tachiiri.

Suggested Citation

  • Hideshi Itoh & Takashi Shimizu & Yasuo Takatsuki, 2025. "Complementarities between Long-Term Relationships and Short-Term Contracts: Case of Early Modern Japan," Discussion Paper Series DP2025-33, Research Institute for Economics & Business Administration, Kobe University.
    • Handle: RePEc:kob:dpaper:dp2025-33
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    File URL: https://www.rieb.kobe-u.ac.jp/academic/ra/dp/English/DP2025-33.pdf
    File Function: First version, 2025
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    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • N25 - Economic History - - Financial Markets and Institutions - - - Asia including Middle East

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