College of Humanities and Social Sciences

Heterogeneity and Exchange: La Convivencia

Daniel Smith

Major Professor: Dr. Peter J. Boettke

Committee Members: Dr. Peter T. Leeson, Dr. Richard E. Wagner

Roberts House (formerly Buchanan House), Conference Room 106
April 19, 2011, 06:30 AM to 07:30 AM


Can wide scale self-enforcing exchange operate among socially distant agents? Traditional reputational mechanisms such as community responsibility systems and ex-ante signaling mechanisms breakdown as the number of agents or their social distance increases. Community responsibility systems breakdown because the costs of intergroup mobility and changing group affiliation decrease and the costs of discerning group affiliation increase as the number of agents or their social distance increases. Similarly, ex-ante signaling mechanisms potentially exclude honest trading partners from participating in wide scale exchange due to the inhibiting costs of ex-ante signaling. Successful local merchants with a large number of customers to disenfranchise by adopting foreign practices and merchants with a particularly deep affinity for their culture or religion find it relatively costlier to engage in ex-ante signaling. In addition, ex-ante signaling, to be effective, must be costly enough that it cannot be readily adopted and disbanded, yet this is precisely what traveling foreign merchants would have to do in order to engage in exchange using ex-ante signaling. This dissertation extends the literature on self-enforcing exchange by positing additional institutional mechanisms that extend traditional reputational and signaling mechanisms in order to facilitate wide scale self-enforcing exchange among large groups of socially distant agents.


The first essay posits a mechanism that allows a foreign merchant to establish a relationship with a reputable member of a local community and then leverage that relationship in order to engage in exchange with other members of that local community. The second essay posits a mechanism that allows reputation established with ex-ante signaling to be extended to foreign traveling merchants so that foreign traveling merchants do not have to invest in the costly ex-ante signaling process with every prospective trading partner in a local community. The final chapter employs the Doux-Commerce Thesis to show that institutions that emerge to facilitate trade between large groups of socially distant agents not only provide substantial economic benefits, but also provide significant non-economic benefits as well, such as the civilizing role that commerce plays in society. Evidence for the operation of these institutional mechanisms and their role as a civilizing force among socially distant agents is provided by a period in Medieval Spain from 711 to 1492 known as La Convivencia, or the coexistence, where Christians, Jews and Muslims lived side-by-side under a polycentric legal system.


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