Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders' Coalition
đź“ś Abstract
This study presents a simple game-theoretic model for examining the economic institutions that supported the eleventh-century Maghribi traders. Institutional elements, notably the absence of judicial contract enforcement, traders' reputation, and the Maghribis' coalition, are incorporated into the model. The model indicates that the coalition established a community of loss-sharing agents who furnished communal enforcement of individual transactions, as opposed to judicial enforcement by the state. This community enforcement mechanism emerged because it was the lowest-cost system for the traders. The findings contribute to understanding social institutions' roles in enforcing otherwise unenforceable trade relationships in pre-modern economies.
✨ Summary
The paper “Contract Enforceability and Economic Institutions in Early Trade: The Maghribi Traders’ Coalition” by Avner Greif examines the economic institutions that supported trade among Maghribi traders in the 11th century and uses a game-theoretic model to propose an enforcement mechanism based on reputation and communal membership rather than judicial enforcement. This has implications for understanding how trade was conducted historically and the evolution of economic institutions. The study influenced subsequent research in institutional economics by providing a model for analyzing pre-modern trade systems and their enforcement mechanisms. Its impact is visible in later works on economic history and institutional studies, such as in the investigation of the role of networks in trade, for example, in E. Avner Greif and Steven Tadelis’s later work on informal contracting (https://www.nber.org/papers/w8475). Additionally, the study is referenced in papers discussing the development of economic theory related to reputation and collective action, such as “Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders” in the Journal of Economic History. These citations underline the paper’s contribution to the development of institutional analysis in economic history.