THE SECRET OF VENETIAN SUCCESS: THE ROLE OF THE STATE IN FINANCIAL MARKETS

Yadira González de Lara ()
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Yadira González de Lara: Universidad de Alicante

Working Papers. Serie AD from Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie)

Abstract: The commercial success of Venice hinged on her merchants¿ ability to do business with borrowed money. However, to raise other people¿s capital, merchants needed to commit not to embezzle the capital received. Despite this commitment problem, the evidence indicates an active financial market through which the Venetians, by and large, mobilized their savings to investments. What were the institutional foundations of this market? This paper claims that neither reputation-based institutions that did not rely on the state nor a coercive legal system provided such foundations. Instead, the state generated the rents and information required to induce merchants to refrain from acting opportunistically.

Keywords: Institutions for Contract Enforcement; State Formation; Financial Markets; Late Medieval Venice (search for similar items in EconPapers)
Pages: 33 pages
Date: 2005-09
New Economics Papers: this item is included in nep-fmk
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ivi:wpasad:2005-28

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