Anglo-Dutch Premium Auctions in Eighteenth Century Amsterdam

with Christiaan van Bochove and with Daniel Quint

This paper studies Anglo-Dutch premium auctions used in the secondary market for financial securities in eighteenth-century Amsterdam, Europe's financial capital at the time. An Anglo-Dutch premium auction consists of an English auction followed by a Dutch auction, with a cash premium paid to the winner of the first round regardless of the second-round outcome. To rationalize the introduction and continued use of this auction format, we need to determine whether bidding behavior was consistent with equilibrium play. We model this auction format theoretically, and show that the likelihood of a bid in the second round should be higher when there is greater uncertainty about the value of the security being sold. We then test this prediction on data from 16,854 securities sold at auction on 469 days over an 18-year period in the late 1700s; using several dierent proxies for the uncertainty of a given security's value, we nd support for this theoretical prediction.

Epidemic Trade

with Battista Severgnini

This paper studies the spread of the Black Death as a proxy for the flow of medieval trade between 1346 and 1351. The Black Death struck most areas of Europe and the wider Mediterranean. Based on a modified version of the gravity model, we estimate the speed (in kilometers per day) of transmission of the disease between the transmitting and the receiving cities. We find that the speed depends on distance, political borders, and on the political importance of a city. Furthermore, variables related to the means of transportation like rivers and the sea, religious seasons such as advent and lent , and geographical position are of substantial significance. These results are the first to enable us to identify and quantify key variables of medieval trade flows based on an empirical trade model. These results shed new light on many qualitative debates on the importance and causes of medieval trade.

The Economics of Debt-Clearing Mechanisms (under review)

with John Hatfield

We examine the evolution of decentralized clearinghouse mechanisms from the 13th to the 18th century; in particular, we explore the clearing of non- or limited-tradable debts like bills of exchange. We construct a theoretical model of these clearinghouse mechanisms, similar to the models in the theoretical matching literature, and show that specific decentralized multilateral clearing algorithms known as rescontre, skontrieren or virement des parties used by merchants were efficient in specific historical contexts. We can explain both the evolutionary self-organizing emergence of late medieval and early modern fairs, and its robustness during the 17th and 18th century.

Medieval Matching Markets (under review)

with Daniel Quint

This paper presents insights into the market microstructure of pre-industrial Europe. In particular it looks into the institution of the broker on markets and fairs and develops a unique data set of approximately 1100 sets of brokerage rules in 42 merchant towns in Central/ West Europe during the period from the late 13th to the end of the 17th century. It shows that towns implemented brokerage as an efficient matchmaking institution in a two-sided market problem. Furthermore, towns differentiated seller-friendly from buyer-friendlier matching mechanisms. The decision whether a town implemented efficient matchmaking mechanisms and if these mechanisms were buyer- or seller friendly depended on the product genre and the complementary policy regulations found in the regulations.

Communal Responsibility and the Coexistence of Money and Credit Under Anonymous Matching (under review)

with Albrecht Ritschl

Implementing credit in models of anonymous random matching between buyers and sellers has proven difficult. Following Greif (2006), this paper studies the medieval institution of communal responsibility among traders of a given city, which helped to overcome anonymity in buyer/seller transactions. We implement this in a village economy version of the Lagos and Wright (2005) model with centralized intra-village and decentralized inter-village markets. Agents trading anonymously in decentralized markets can be identified by their citizenship and thus be held liable for each other. Enforceability within each village’s centralized market ensures collateralization of credit in decentralized markets. In the resulting equilibrium, money and credit coexist in decentralized markets if the use of credit is costly. We argue that this mechanism is important in explaining the rise of financial markets in Early Modern continental Europe, where territorial fragmentation prevented centralized contract enforcement. Our analysis easily extends itself to other forms of collateralization in payment systems.

Breaking up is hard to do: Partnership Dissolution, the Economy of the Commenda, and the Origin of the Firm

This paper investigates the efficiency of the most important medieval partnership contract, the commenda. In particular we look into the dissolution at the end of a commenda partnership. We find that only a limited set of dissolution procedures existed, which were ex-ante and state independently in the contract. These contractual forms were welfare- or constraint-efficient only for a very narrow range of economic environments. We show that medieval merchants exactly exploited these environments by setting up a mechanism design model, which replicates the dissolution mechanism of the commenda. The commenda mechanisms correspond with the theoretically predicted second-best mechanisms for the given environment. In addition we conduct a comparative static analysis to explain why certain commenda forms dominated and disappeared over time. We use the model to explain why in the late Middle Ages, the money commenda started to dominate, the bilateral commenda disappeared and the land commenda played a minor role in the medieval land trade. Furthermore, we give complementary explanations about where the possible roots of the commenda were and why the first firm contracts appeared.