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Contracts, Institutions, and Markets in Historical Perspective

Objectif

A growing number of scholars are studying the interactions between cultural values, social and religious norms, institutions, and economic outcomes. The rise of markets, as well as the development of contracts that enable mutually beneficial transactions among agents, are one of the central themes in the literature on long-term economic growth.

This project contributes to both strands of literature by studying the invention and development of marine insurance contracts in medieval Italy and their subsequent spread all over Europe. It brings the economic approach to previously unexplored historical data housed in archives in Florence, Genoa, Pisa, Palermo, Prato, and Venice.

The interest in the historical origin and development of marine insurance contracts is twofold. First, marine contracts are the “parents” of all the other insurance contracts (e.g. fire, life, health, etc) that were developed in subsequent centuries to cope with risk. Second, their invention, as well as other innovations in business practices in the Middle Ages, contributed to the growth of international trade in subsequent centuries.

The key novelty of the project stems from combining contract theory with information from thousands of insurance contracts between 1300 and 1550 to explain why marine insurance developed in medieval Italy and then Europe, to study the empirical determinants of insurance contracts in medieval Italy, and to analyze how medieval merchants coped with adverse selection and moral hazard problems.

Most scholars agree that marine insurance was unknown to the ancient world. Italian merchants developed the first insurance contracts and other innovations in business practices during and in the aftermath of the Commercial Revolution that swept Europe from roughly 1275 to about 1325. Marine insurance contracts may have developed as a spin-off of earlier contracts which shifted the risk from one party to another (e.g. sea loan, insurance loan). Alternatively, in the early or mid-fourteenth century, sedentary merchants that provided the capital to travelling merchants invented a new type of contract, when they discovered that the existing contract forms had shortcomings in transferring and dividing sea risk.


A sample of the questions that this project will address includes:
- Why did insurance contracts and a marine insurance market first develop in medieval times and not earlier despite merchants had to deal with the risks associated with maritime trade since antiquity?
- What were the empirical determinants of contract form (e.g. insurance premium) in the medieval insurance market?
- How did medieval merchants compute insurance premia without having the formal notion of probability that was developed only in the mid-seventeenth century?
- How did medieval merchants cope with the typical problems that plague insurance markets, i.e. adverse selection and moral hazard?

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ERC-2011-ADG_20110406
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ERC-AG - ERC Advanced Grant

Institution d’accueil

UNIVERSITA COMMERCIALE LUIGI BOCCONI
Contribution de l’UE
€ 1 113 900,00
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