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Coordination, compensation and the expansion of trade: The merchant guilds revisited

Harbord, David and Fehr, Nils Henrik von der (2011): Coordination, compensation and the expansion of trade: The merchant guilds revisited.

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Abstract

Greif, Milgrom and Weingast (1994) argued that the ability of the merchant guilds to encourage trade expansion required an internal mechanism to enforce compliance to trade embargoes, otherwise credible incentives for "embargo breaking" would have rendered them ine¤ectual. We show that sustaining e¢ cient trade implied an ability of the guilds to restrict their membership but no internal enforcement mechanism was necessary. Our reformulation of the guilds´ strategies - based on the historical evidence - makes trade embargoes self-enforcing and allows us to provide a richer picture of how the guilds could have facilitated trade expansion by controlling merchant trading activities.

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