The Financial Structure of Commercial Revolution: Financing Long-distance Trade in Venice 1190-1220 and Venetian Crete 1278-1400
Abstract: How did European merchants finance the Commercial Revolution? The principal narrative highlights a role for commenda contracts in enabling merchants to share risks and mobilize investment for long-distance trade. This study illuminates tradeoffs merchants and their agents encountered in choosing between equity-like schemes (commenda) and debt financing. The study works out of a dataset of 1,823 maritime contracts and 291 non-maritime contracts that span 3,099 unique contracting dyads (principal-agent pairs). The study demonstrates that it was debt, not commenda, that financed trade on the frontiers of the trade economy. It further demonstrates that most trade was conducted through one-shot relationships, not repeated relationships. The results delimit the roles of both formal and relational enforcement mechanisms in enabling long-distance trade.