Lars Boerner

The Economic History of Sovereignty: Communal Responsibility, the Extended Family, and the Firm

Economic institutions encompassing increasingly sophisticated concepts of risk-sharing and liability flourished in Europe since the High Middle Ages. These innovations occurred in an environment of fragmented local jurisdictions, not within the framework of the territorial state. In this short paper we attempt to sketch a unifying approach towards the interpretation of the emergence of these institutions. We argue that communal responsibility in medieval city states created incentives for excessive risk-taking by individual merchants, and that the emergence of firms mitigated this problem. We also find that entity shielding in the sense of Hansmann et al. (2006) arose endogenously and is not primarily the result of regulation by local authorities.

Anglo-Dutch Premium Auctions in Eighteenth-Century Amsterdam

An Anglo-Dutch premium auction consists of an English auction followed by a Dutch auction, with a cash premium paid to the winner of the first round. We study such auctions used in the secondary debt market in eighteenth-century Amsterdam. This was among the first uses of auctions, or any structured market-clearing mechanism, in a financial market. We find that this market presented two distinct challenges - generating competition and aggregating information. We argue that the Anglo-Dutch premium auction is particularly well-suited to do both. Modeling equilibrium play theoretically, we predict a positive relationship between the uncertainty in a securitys value and the likelihood of a second-round bid. Analyzing data on 16,854 securities sold in the late 1700s, we find empirical support for this prediction. This suggests that bidding behavior may have been consistent with (non-cooperative) equilibrium play, and therefore that these auctions were successful at generating competition. We also find evidence suggesting that these auctions succeeded at aggregating information. Thus, the Anglo-Dutch premium auction appears to have been an effective solution to a complex early market design problem.

Communal Responsibility and the Coexistence of Money and Credit Under Anonymous Matching

Communal responsibility, a medieval institution studied by Greif (2006), supported the use of credit among European merchants in the absence of modern enforcement technologies. This paper shows how this mechanism helps to overcome enforcement problems in anonymous buyer/seller transactions. In a village economy version of the Lagos and Wright (2005) model, agents trading anonymously in decentralized markets can be identified by their citizenship and thus be held liable for each other. Enforceability within each villages centralized afternoon market ensures collateralization of credit in decentralized markets. In the resulting equilibrium, money and credit coexist in decentralized markets if the use of credit is costly. Our analysis easily extends itself to other payment systems like credit cards that provide a group identity to otherwise anonymous agents.

Medieval Matching Markets

This paper studies the market microstructure of pre-industrial Europe. In particular we investigate the institution of the broker in markets and fairs, and develop a unique data set of approximately 1100 sets of brokerage rules in 42 merchant towns in Central and Western Europe from the late 13th to the end of the 17th century. We show that towns implemented brokerage as an efficient matchmaking institution in a two-sided market problem. Furthermore, towns differentiated seller-friendly from buyer-friendlier matching mechanisms. We show that the decision to implement matchmaking mechanisms, and whether these mechanisms would be buyer- or seller friendly, depends on the products in question and the stated policy goals of the town, as well as time and geographic variables.

The Design of Debt Clearing Markets: Clearinghouse Mechanisms in Pre-Industrial Europe

We examine the evolution of the decentralized clearinghouse mechanisms that were in use throughout Europe from the thirteenth century to the eighteenth century; in particular, we explore the clearing of nontradable or limited-tradable debts such as bills of exchange. We construct a theoretical model of these clearinghouse mechanisms and show that the specific decentralized multilateral clearing algorithms known as rescontre, skontrieren, or virement des parties, used by merchants in this period, were efficient in specific historical contexts. Our analysis contributes to the understanding of these mechanisms during late medieval and early modern fairs and their robustness during the seventeenth and eighteenth centuries.

Time for Growth

This paper studies the impact of the early adoption of one of the most important high-technology machines in history, the public mechanical clock, on long-run growth in Europe. We avoid en- dogeneity by considering the relationship between the adoption of clocks with two sets of instru- ments: distance from the first adopters and the appearance of repeated solar eclipses. The latter instrument is motivated by the predecessor technologies of mechanical clocks, astronomic instru- ments that measured the course of heavenly bodies. We find significant growth rates between 1500 and 1700 in the range of 30 percentage points in early adoptor cities and areas.