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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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  1. Dessi, Roberta & Ogilvie, Sheilagh, 2003. "Social Capital and Collusion : The Case of Merchant Guilds," IDEI Working Papers 214, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. 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.
  3. 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.
  4. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "The Role of Social Capital in Financial Development," American Economic Review, American Economic Association, vol. 94(3), pages 526-556, June.
  5. Alberto Alesina & Eliana La Ferrara, 2000. "Participation In Heterogeneous Communities," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 847-904, August.
  6. Alesina, Alberto F & La Ferrara, Eliana, 2000. "Who Trusts Others?," CEPR Discussion Papers 2646, C.E.P.R. Discussion Papers.
  7. La Porta, Rafael, et al, 1997. "Trust in Large Organizations," American Economic Review, American Economic Association, vol. 87(2), pages 333-38, May.
  8. 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.
  9. 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.
  10. 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.
  11. Alesina, Alberto & La Ferrara, Eliana, 2005. "Ethnic Diversity and Economic Performance," Scholarly Articles 4553005, Harvard University Department of Economics.
  12. Alberto Alesina & Eliana La Ferrara, 2003. "Ethnic Diversity and Economic Performance," Harvard Institute of Economic Research Working Papers 2028, Harvard - Institute of Economic Research.
  13. 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.
  14. Jeffrey Butler & Paola Giuliano & Luigi Guiso, 2009. "The Right Amount of Trust," Economics Working Papers ECO2009/33, European University Institute.
  15. Spagnolo, Giancarlo, 1999. "Social relations and cooperation in organizations," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 1-25, January.
  16. Edward L. Glaeser & David I. Laibson & José A. Scheinkman & Christine L. Soutter, 2000. "Measuring Trust," The Quarterly Journal of Economics, MIT Press, vol. 115(3), pages 811-846, August.
    • Glaeser, Edward Ludwig & Laibson, David I. & Scheinkman, Jose A. & Soutter, Christine L., 2000. "Measuring Trust," Scholarly Articles 4481497, Harvard University Department of Economics.
  17. Richardson, Gary, 2001. "A Tale of Two Theories: Monopolies and Craft Guilds in Medieval England and Modern Imagination," Journal of the History of Economic Thought, Cambridge University Press, vol. 23(02), pages 217-242, June.
  18. Edward L. Glaeser & David Laibson & Bruce Sacerdote, 2002. "An Economic Approach to Social Capital," Economic Journal, Royal Economic Society, vol. 112(483), pages 437-458, November.
  19. Joseph E. Harrington, Jr, 2006. "Modelling the Birth and Death of Cartels with an Application to Evaluating Antitrust Policy," Economics Working Paper Archive 532, The Johns Hopkins University,Department of Economics.
  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. La Ferrara, Eliana & Alesina, Alberto, 2000. "Participation in Heterogeneous Communities," Scholarly Articles 4551796, Harvard University Department of Economics.
  22. 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.
  23. Joel Sobel, 2002. "Can We Trust Social Capital?," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 139-154, March.
  24. 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.
  25. Zak, Paul J & Knack, Stephen, 2001. "Trust and Growth," Economic Journal, Royal Economic Society, vol. 111(470), pages 295-321, April.
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