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On the Social Foundations and Historical Development of Institutions that Facilitate Impersonal Exchange: From the Community Responsibility System to Individual Legal Responsibility in Pre-modern Europe

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  • Avner Greif

Abstract

June 12, 1997 Existing works on the economic implications of social structures examined the effect of intra-community information and contract enforcement institutions on personal exchange among that community's members. In contrast, this paper examines the extent to which common knowledge regarding social structure impact the set of feasible institutions and thereby the scope of inter-community, impersonal market exchange. When this extent is large, economic agents can condition their actions on one's social affiliation thereby enabling the operation of an institution taking advantage of intra-community, personal contract enforcement to support inter-community, impersonal exchange. This argument is embedded in a historical study of contract enforcement institution that supported inter-community, impersonal exchange in pre-modern Europe. The paper's game theoretical and historical analysis indicates the importance of a particular institution - the Community Responsibility System - in supporting inter-community, impersonal exchange from as early as the twelfth century despite the lack of appropriate legal contract enforceability provided by the state. Thus, the analysis suggests the deficiency of the common view in economic history that in pre-modern Europe impersonal exchanges were not conducted before the emerging states established the appropriate legal systems. By the thirteenth century, however, various communities attempted to abolish the Community Responsibility System and substitute it with legal contract enforcement provided by the state. Social processes that impact the extent to which social structure is common knowledge, communities' size, intra-community heterogeneity, and inter-community mobility were important contributors to this transition..

Suggested Citation

  • Avner Greif, 1997. "On the Social Foundations and Historical Development of Institutions that Facilitate Impersonal Exchange: From the Community Responsibility System to Individual Legal Responsibility in Pre-modern Euro," Working Papers 97016, Stanford University, Department of Economics.
  • Handle: RePEc:wop:stanec:97016
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    File URL: http://www-econ.stanford.edu/faculty/workp/swp97016.pdf
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    References listed on IDEAS

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    1. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 857-882, December.
    2. Jean Tirole, 1996. "A Theory of Collective Reputations (with applications to the persistence of corruption and to firm quality)," Review of Economic Studies, Oxford University Press, vol. 63(1), pages 1-22.
    3. Besley, Timothy & Coate, Stephen, 1995. "Group lending, repayment incentives and social collateral," Journal of Development Economics, Elsevier, vol. 46(1), pages 1-18, February.
    4. Bouman, F. J. A., 1995. "Rotating and accumulating savings and credit associations: A development perspective," World Development, Elsevier, vol. 23(3), pages 371-384, March.
    5. R. D. Face, 1958. "Techniques Of Business In The Trade Between The Fairs Of Champagne And The South Of Europe In The Twelfth And Thirteenth Centuries," Economic History Review, Economic History Society, vol. 10(3), pages 427-438, April.
    6. Greif, Avner, 1994. "Cultural Beliefs and the Organization of Society: A Historical and Theoretical Reflection on Collectivist and Individualist Societies," Journal of Political Economy, University of Chicago Press, vol. 102(5), pages 912-950, October.
    7. Glenn Ellison, 1994. "Cooperation in the Prisoner's Dilemma with Anonymous Random Matching," Review of Economic Studies, Oxford University Press, vol. 61(3), pages 567-588.
    8. Montgomery, James D, 1991. "Social Networks and Labor-Market Outcomes: Toward an Economic Analysis," American Economic Review, American Economic Association, vol. 81(5), pages 1407-1418, December.
    9. Greif, Avner, 1993. "Contract Enforceability and Economic Institutions in Early Trade: the Maghribi Traders' Coalition," American Economic Review, American Economic Association, vol. 83(3), pages 525-548, June.
    10. Hirschman, Albert O, 1982. "Rival Interpretations of Market Society: Civilizing, Destructive, or Feeble?," Journal of Economic Literature, American Economic Association, vol. 20(4), pages 1463-1484, December.
    11. Varian, H.R., 1989. "Monitoring Agents With Other Agents," Papers 89-18, Michigan - Center for Research on Economic & Social Theory.
    12. 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 745-776, August.
    13. Michihiro Kandori, 1992. "Social Norms and Community Enforcement," Review of Economic Studies, Oxford University Press, vol. 59(1), pages 63-80.
    14. DANIEL B. KLElN, 1992. "Promise Keeping In The Great Society: A Model Of Credit Information Sharing," Economics and Politics, Wiley Blackwell, vol. 4(2), pages 117-136, July.
    15. Clay, Karen, 1997. "Trade without Law: Private-Order Institutions in Mexican California," Journal of Law, Economics, and Organization, Oxford University Press, vol. 13(1), pages 202-231, April.
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    Cited by:

    1. Jain, Tarun & Sood, Ashima, 2017. "How does relationship-based governance accommodate new entrants? Evidence from the cycle-rickshaw rental market," Journal of Institutional Economics, Cambridge University Press, vol. 13(03), pages 673-697, September.

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