Wednesday, March 9, 2011

Designing matching mechanisms in medieval times

There is a remarkable diversity in economic institutions across the world, and it is always interesting to understand why and how they developed differently. Think for example of the large variety of ways tariffs and taxation are implemented. It is of special interest to do so for economies a few centuries ago because institutions evolved then much more isolated from each other and with little guidance from pure theory.

Lars Boerner and Daniel Quint study how brokerage rules have been established in 42 European merchant towns between the 13th and 17th century. Brokers are important because they facilitate the market clearing process, but they may also abuse their power and need to be regulated. Sometimes these rules are seller-friendly, and sometimes they are buyer-friendly. Seller-friendly rules attract foreign merchants by giving them more surplus. It is not obvious whether this is welfare improving for the local population. The paper tries to show what made the towns go one way or the other. Part of the answer come from town effects, but what type of good is exchanged matters a lot as well. For example, food market usually have buyer friendly rules, as this benefits the most the local population which is often also the final consumer. For textile and leather markets, rules are more seller friendly, probably because the buyer is more likely to be from outside town. There is much more in the paper.

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