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Tuesday, September 23, 2008

Law v. Social Pressure in Medieval Business

Aaa_2 How do societies develop methods of enforcing commercial dealings?  That’s a subject that both economists and historians have investigated over the years.  They've paid particular attention to the "Maghribi," Jewish traders in the Islamic Mediterranean of the Middle Ages. Stanford’s Avner Greif (left) has written about them extensively, suggesting that they relied on a "multilateral reputation mechanism" in a closed society to enforce dealings, rather than a formal legal system, and arguing that this left them at a disadvantage vis-a-vis the more legalistic Italians.

Earlier this year, two Cambridge economists, Jeremy Edwards and Sheilagh Ogilvie, took issue with that claim in a a paper that argued that Maghribis did, in fact, deal extensively with outsiders and used formal legal mechanisms to do so.

Greif has now responded with Contract Enforcement and Institutions Among the Maghribi Traders: Refuting Edwards and Ogilvie.  You probably need to be an expert to follow the nuances, but both articles are worth a read. Here’s Grief’s abstract:

Edwards and Ogilvie (2008) dispute the empirical basis of the view (Greif, e.g., 1989, 1994, 2006) that a multilateral reputation mechanism mitigated agency problems among the eleventh-century Maghribi traders. Based on anecdotal evidence and an interpretation of the secondary literature they assert that the relations among merchants and agents were law-based. This paper refutes this assertion based on comprehensive quantitative analyzes of the documentary corpuses and a careful review of the documents and the literature Edwards and Ogilvie cite. The assertion that the legal system had a major role in supporting trade is based on unrepresentative and irrelevant examples, an inaccurate description of the literature, and a consistent misreading of the few sources Edwards and Ogilvie consulted. The claim that merchants' relations with their overseas agents were law-based in this historical era is wrong.

Among the recent and new quantitative findings reported here is that (1) less than one percent of the documents' content is devoted to legal activity on any matter. (3) The legal system was mainly used for mandatory, non-trade related matters. (Edwards and Ogilvie constantly present mandatory legal actions in non-trade related legal cases as evidence for voluntary legal actions in matters pertaining to trade.) (3) The documents reflect thousands of agency relations but there are less than six court documents possibly reflecting its use in agency disputes. (4) A ten percent random sample of all the documents finds no trade-related legal actions among Maghribis beyond those in the court documents. (5) About 75 percent of agency relations were not based on a legal contract. The paper also reaffirms the accuracy of Greif's documentary examples and sheds light on the roles of the legal system and reputation mechanism during this period. The empirical basis for the multilateral reputation view is stronger than originally perceived.

[Frank Snyder]

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