The Secret of Venetian Success: Public-order yet Reputation-based Institutions
de Lara, Yadira González
XIV International Economic History Congress, Session 84, Helsinki, July 21 (2006)
This paper examines the institutional foundations of the financial market underpinning Venice’s commercial success during the late-medieval period. A public-order, reputation-based institution enabled merchants to commit not to (i) flee with the investors’ capital, despite the limited geographical reach of the legal system and (ii) violate their contracts, despite the investors’ inability to directly monitor them. Reputation concerns vis-à-vis the state motivated merchants to submit themselves to the Venetian authorities, while tight administrative trading controls provided the courts with the verifiable information required to detect a contractual breach. These institutional arrangements differed from both public-order and private-order institutions studied previously.