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

  • Roberta Dessì

    (Toulouse School of Economics (GREMAQ and IDEI) and CEPR)

  • Salvatore Piccolo

    ()

    (Toulouse School of Economics, University of Naples Federico II and CSEF)

We develop a theory of the emergence of merchant guilds as an efficient mechanism to implement collusion among merchants and rulers, building on the natural complementarity between merchants’ market trading and mutual monitoring. Unlike the seminal paper in the existing literature, we focus primarily on the far more numerous local merchant guilds, rather than alien guilds, accounting for the main observed features of their behavior, their internal organization, and their relationship with rulers. Our model delivers novel predictions about guild size, membership restrictions, and their welfare implications. It also identifies the main channels through which the guilds’ social capital influenced their ability to collude effectively with rulers. As we show, the available historical evidence offers ample support for our theory, shedding new light on the role of the guilds’ social capital. We then analyze the key trade-offs faced by rulers in choosing whether to grant recognition to one or multiple guilds. This helps us to understand the observed distribution of guilds, and provides a rationale for the establishment of both local and alien merchant guilds.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 202.

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Date of creation: 01 Sep 2008
Date of revision: 12 Jul 2009
Handle: RePEc:sef:csefwp:202
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