Leveraging Reputation: Guidaticums in Medieval Spain
Smith, Daniel J. (George Mason University)
The ability of traditional reputational mechanisms to facilitate wide scale self-enforcing exchange becomes severely limited as the number of agents, or their social distance, increases. While ex ante signaling mechanisms can be used to reduce social distance, the cost of ex ante signaling is inhibiting for traveling merchants; precisely those merchants engaging in wide scale trade. This paper extends this literature by showing how a traveling merchant can leverage the reputation of a sedentary merchant through a legal document that makes the sedentary merchant liable in their local court for any fraudulent exchanges conducted by the traveling merchant. Medieval Spain, where Christians, Jews and Muslims coexisted in close proximity under competing legal systems is used to demonstrate the operation of such a device.
There has been a growing body of literature examining how reputational mechanisms can be extended in order to facilitate self-enforcing exchange. Greif (2002) examines how community responsibility systems can emerge to facilitate impersonal trade without centralized authority. With small enough groups, homogenous members, and an accurate way of assessing group affiliation, members of one group can be held responsible as a whole for any transgression by a member of their own group towards a member of another group.