Enforceability And Risk-Sharing In Financial Contracts: From The Sea Loan To The Commenda In Late Medieval Venice

My dissertation uses historical records and a context-specific mechanism-design model to investigate the institutional and contractual arrangements that enhanced mobilization of capital and risk-sharing in late-medieval Venice.This disssertation was written at the Department of Economics at the European University Institute under the supervision of Professors Avner Greif and Ramon Marimon with support from the Social Science History Institute at Stanford University. I also wish to thank Andrea Drago, Gavin Wright, Jaime Reis, and Leandro Prados de la Escosura for their help in various ways. The funding of long-distance risky trade in late medieval Venice could potentially promote economic prosperity, but it required that merchants were able to commit ex-ante not to breach their financial contracts ex-post. Institutions for contract enforcement were thus required to mitigate this commitment problem and enable welfare-enhancing financial exchange.Institutions are constraints that enable merchants to commit. For a definition of institutions, see Greif, Historical Institutional Analysis; and North, Institutions. Distinct institutional arrangements enforce different sets of contractual forms, among which particular ones can be chosen. The selection of various contracts, and their underlying institutional foundations, has significant efficiency effects. The dissertation thus integrates a historical institutional analysis of the emergence and transition of various contracts with the study of their efficiency attributes. This approach enables me to address the following questions: What institutions for contract enforcement enabled the Venetians to commit to the sea loan (a debt-like contract) and the commenda (an equity-like contract)? What caused the transition from the former to the latter? Did the Venetians attain an optimal allocation of risk?