Ensayos disponibles en la bibliografía

Now that we have explored the micro-foundation of honest exchange in impersonal setting, we can consider how powerful actors (rulers and elites) would react to it. We saw how relationship-based equilibrium is a persistent equilibrium. So, conditions before the transition to an imper-sonal equilibrium can be considered to be a stasis. In the absence of the possible conditions sup-porting a transition out of the stasis, would rulers/governments support impersonal and impartial institutions like impersonal marketplaces, networking venues, and impartial courts? Such open marketplaces and institutions were developed in Northwestern European cities like Amsterdam, Antwerp (Gelderblom 2013) and Hamburg (Dollinger 1970); while in cities like L¨ubeck open-ing of markets faced significant resistance from incumbents (Dollopen-inger 1970, Lindberg 2009).

Can the model impersonal economy help us explain this divergence?

I consider the specific setting of medieval and early modern Europe and introduce a ruler and merchant guild elites as actors in the model economy. These actors (rulers and elites) could alter the value of payoffs (m, h), observing population’s initial levels of adoption of standardized rou-tines (pH(0)), and the payoff available in impersonal exchange (c). The ruler was interested in

24When i = 0, in the neighborhood of stable equilibrium where pD=_k ^koh

s(c m) komthe relative benefit of being an honest trader is increasing in pD. When i increases the relative benefit reduces as ⇡Dincreases while ⇡Hstays constant. This shifts the relative benefit curve in the neighborhood rightwards, and the equilibrium pDincreases with increasing i.

maximizing its tax revenue, while the guild elites were interested in maintaining their monopoly, granted to them by the ruler in exchange for revenue.

A ruler of a relationship-based system had a choice of removing monopolies of merchant guilds and establishing institutions that supported impersonal markets, or of maintaining them.

If the ruler maintained merchant guild monopolies, then if at all any impersonal trade occurred, it occurred in informal (unsanctioned) markets. In impersonal markets sanctioned by ruler the ruler will improve law and order (reduce h), while in an unsanctioned informal market the ruler would attempt to make it worse by punishing those who conduct such impersonal exchanges despite the monopoly restriction (increase h). So, loss from cheating in the informal markets (hⁱ) was higher than the loss in ruler sanctioned impersonal markets (hⁱ = h > h).

At the same time, the merchant guild elites were the beneficiaries of the relationship-based system, as merchant guilds were at the center of commerce in the relationship-based econ-omy. Merchant guilds were the intermediaries/brokers in many business exchanges, and elites could endogenously influence the payoff (m) from the relationship-based channels. If brokerage charges of the merchant guilds controlled by elites were expensive, the payoff from relationship-based channel was lower. I assume elites could set relationship-relationship-based payoff within a range m 2 [m^min, m^max]. Under what observed conditions (impersonal payoff (c) and initial adop-tion (p^cr_H)) would ruler choose to remove monopolies, given that merchant guild elites would alter relationship-based payoff (m) to block such a transition?

To remove the monopolies granted to merchant guilds, the ruler must have anticipated that impersonal trade beyond relationship-based networks would be feasible. As impersonal trade was only supported under special utility conditions (Corollary 1) and in the presence of hor-izontal communicators (Corollary 2), the satisfaction of the two conditions was a necessary requirement for the ruler to remove monopoly privileges of merchant guilds. In the absence ei-ther of the two conditions, 1) all traders preferred relationship-based exchange, which merchant guilds dominated, and 2) ruler and merchant guilds elites continued their mutually beneficial nexus, where a) the ruler provided monopolies to the merchant guilds while in return b) the merchant guild elites provided ruler with revenue.

Merchant guilds elites would alter relationship-based payoff (m), to block the possibility of transition to impersonal equilibrium in which merchant guilds lost all power. Also, the merchant guild elites would prefer to keep a low relationship-based payoff for others, so that they did not have to part away with their share of wealth. How much payoff would guild elites set to block the transition to impersonal equilibrium?

When payoffs are endogenized, Proposition 2 emerges (see Proof in appendix C.2).

Proposition 2 Choices of ruler and merchant guild elites are:

• A necessary condition for ruler to remove merchant guild monopolies is when merchant guild elites have increased relationship-based payoff to the maximum (m = m^max) and if pH(0) > _{c+ m}^{(1+ )(m}max^max+(1+ )h^+h) and c > ^{(1+ )}h + m^max. Otherwise ruler maintains monopoly.

• If ruler maintains monopoly, merchant guild elites set minimum relationship-based payoff m = m^minif pH(0) _{c+ m}^{(1+ )(m}min+(1+ ) h^{min+ h)} or c  ^{(1+ )} h + m^min. Otherwise merchant

Figure 2.5: The figure describes conditions in which different systems of exchange emerge. The X-axis represents the level of impersonal opportunity c, while the Y-axis represents the level of initial adoption of standardized routines of impartial conduct pH(0).

guild elites set m 2 (m^min, m^max).

Figure 2.5 represents the different conditions. Proposition 2 and Figure 2.5 implies the following.

• Monopoly and no reform: If, the number of traders who initially adopted standardized routines of impartial conduct, was small (p^m_H is small), then unless impersonal exchange (c) was exceptionally lucrative, traders were unable to trigger a transition to impersonal equilibrium. So, merchant guilds could set relationship-based payoffs (m) to the min-imum (exploit by setting m = m^min in Region 3 of Figure 2.5), as regardless of the payoff traders would continue to rely on relationship-based channels dominated by mer-chant guilds.

• Monopoly and reform: If payoff from impersonal exchange was high, and there was a large population of initial adopters of standardized routines (p^m_H is high), conditions could be favourable for transition even if ruler had not removed monopolies, as trade could occur in suitable informal settings²⁵. Under the above conditions elites would attempt to make impersonal exchange relatively less lucrative, by raising the payoffs from relationship-based exchange (reform traditional institutions by setting m > m^min in Region 2 of Figure 2.5) such that conditions became unfavorable to transition once again. But, there were limits to how much elites could raise the relationship-based payoffs.

25It could be that informal markets were risky and loss from being cheated hⁱwas high, in which case impersonal exchange is not feasible without ruler removing monopoly.

• Impersonal market: If (i) impersonal exchange became highly lucrative, and (ii) there was large population of initial adoptees of standardized routines, such that the elites did not have the resources to reform and raise relationship-based payoff high enough, then the relationship-based institutions could be said to have become inefficient, and the economy could then transition to the equilibrium of impersonal exchange (Impersonal market in Region 1 of Figure 2.5).

In the sixteenth century Europe, closeness to the sea in cities like Antwerp, Amsterdam, and Hamburg was favorable for long-distance trade, which made impersonal exchange lucrative, and so closeness to sea could proxy for higher payoffs from impersonal exchange (c). Additionally, the booming long-distance trade of the sixteenth century at the Atlantic coast could be the dis-ruptive opportunity for such cities, that rendered guilds inefficient for reforms. In contrast, a city like L¨ubeck did not enjoy the disruptive opportunity of the Atlantic coast and had power-ful local elites who profited from the Baltic trade, who were willing to block any transition to impersonal markets (Dollinger 1970, Lindberg 2009). Similarly, penetration of printed books increased horizontal transmission of new norms, ideas and standardized business practices like double-entry bookkeeping in cities like Antwerp and Amsterdam, and high printing penetra-tion could proxy for high initial adoppenetra-tion of standardized routines (p^cr_H)²⁶. In such cities, there was scope for impersonal exchange between “footloose” traders (Gelderblom 2013), and rulers began to attract them by establishing more impersonal institutions, often ignoring the requests of merchant guild elites for new monopolies. The next chapter will discuss these dynamics in greater detail.

The insight provided in Figure 2.5 is not limited to medieval and early modern Europe alone, and can be abstracted to modern economies as well, where economies trapped in punctu-ated equilibrium of relationship-based exchange could also have exploitative elites/brokers (like Mafia), in nexus with politicians. It’s only when suitable conditions exist that enable sustained impersonal exchange to occur (presence of favorable utility conditions and horizontal commu-nicators), that politicians improve impersonal and impartial institutions, and stop favoring elite brokers who lose dominance in such an impersonal environment²⁷.