The Extralegal Development of Securities Trading in Seventeenth Century Amsterdam
Edward Peter Stringham
Fayetteville State University - School of Business and Economics; Texas Tech University - Rawls College of Business
December 18, 2001
Quarterly Review of Economics and Finance, Vol. 43, No. 2, p. 321, 2003
It is often argued that government rule enforcement is necessary for the development of a stock market (Glaeser, Johnson, & Shleifer, 2001). Work by Boot, Stuart, and Thakor (1993), Klein and Leffler (1981), and Telser (1980), however, suggests that repeated interaction and reputation can create incentives for contracts to be self-enforcing. This paper investigates these claims by examining the first stock market, the Amsterdam Bourse. At a time when many financial contracts were unenforceable in government courts the market developed surprisingly advanced trading instruments. Descriptions by seventeenth-century stockbroker, De la Vega [Confusion de Confusiones], indicate that a reputation mechanism enabled extralegal trading of relatively sophisticated contracts including short sales, forward contracts, and options.
Number of Pages in PDF File: 24
Keywords: Extralegal, Enforcement, Reputation
JEL Classification: L14, N23, G28Accepted Paper Series
Date posted: September 16, 2010
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