A summary of “Reputation and Coalitions in Medieval Trade”
During the eleventh century, the Mediterranean took on an air of prosperity. Both transportation service and mail delivery service were competitive. Each trade center was free. Although they provided favorable conditions to promote commerce, there were contractual problems. The need to solve those issues drove traders to form an economic institution which could facilitate trade by lowering transaction cost and information transmission.
How agency relations were established conduced to understand the fast economic growth in Mediterranean trade. The interdependent relation between merchants and agents motivated the parties because there is a large efficiency gain. For example, merchants employ oversea agents to deal with business abroad to lower transaction cost if contractual problems were absent. And an overseas agent shared profit with a merchant. Nevertheless, the efficiency gains were not easy to be achieved because …show more content…
On the one hand, this information allowed the traders to adjust prices, business decision-making, and monitoring agent’s conduct. On the other hand, to a large extent it facilitated the reputation mechanism as a cheater had no access to the coalition's internal information. Moreover, Information was a byproduct of the trade because it cost nothing to receive it.
Finally, coalitions played an important role in helping businessmen overcome contractual problems. It spurred economic growth by implicit contracts and information transmission. Implicit contracts did reduce the transaction cost through lowering the optimal premium. In order to function the reputation mechanism, such monitoring was necessary. Thus, how reputation and implicit contracts among members of "coalitions”, an economic institution, conquered contractual problems may help to understand the evolutionary process of economic
During the eleventh century, the Mediterranean took on an air of prosperity. Both transportation service and mail delivery service were competitive. Each trade center was free. Although they provided favorable conditions to promote commerce, there were contractual problems. The need to solve those issues drove traders to form an economic institution which could facilitate trade by lowering transaction cost and information transmission.
How agency relations were established conduced to understand the fast economic growth in Mediterranean trade. The interdependent relation between merchants and agents motivated the parties because there is a large efficiency gain. For example, merchants employ oversea agents to deal with business abroad to lower transaction cost if contractual problems were absent. And an overseas agent shared profit with a merchant. Nevertheless, the efficiency gains were not easy to be achieved because …show more content…
On the one hand, this information allowed the traders to adjust prices, business decision-making, and monitoring agent’s conduct. On the other hand, to a large extent it facilitated the reputation mechanism as a cheater had no access to the coalition's internal information. Moreover, Information was a byproduct of the trade because it cost nothing to receive it.
Finally, coalitions played an important role in helping businessmen overcome contractual problems. It spurred economic growth by implicit contracts and information transmission. Implicit contracts did reduce the transaction cost through lowering the optimal premium. In order to function the reputation mechanism, such monitoring was necessary. Thus, how reputation and implicit contracts among members of "coalitions”, an economic institution, conquered contractual problems may help to understand the evolutionary process of economic