Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


Institutions and Impersonal Exchange: The European Experience


Avner Greif - The Bowman Family Endowed Professor in Humanities and Sciences and Professor, by courtesy of History, and Senior Fellow, by courtesy at SIEPR

April 2005

This paper presents an instituion - the COmmunity Responsibility System (CRS) - which constitutes a missing link in our understanding of market development. It highlights the importance of contract enforcement institutions combining reputational and legal mechanisms in the rise of modern markets. Throughout pre-modern Europe, the CRS provided the contract enforcement required for intercommunity impersonal exchange characterized by separation between the quid and the quo over time and space. It induced communities to care about their collective reputation and motivated their partial courts to provide partial justice. Collective responsibility, which supports micro-lending in developing countries, was a central component of the European developmental process. The CRS contributed to teh endogenous institutional dynamic that led to the development of an intra-state centralized legal system based on personal legal responsibility that is currently the norm. This development supports the view that long-distance trade impacts economic growth through its influence on intra-state institutional development.