Could the Crown Credibly Commit to Respecting its Charters? England, 1558-1640

Abstract:     
This chapter offers a twofold shift in the application of the ‘credible commitment’ concept laid down by North and Weingast in their classic 1989 article. It examines the concept in the context of charter-granting, rather than in that of the national debt and the government bond market, and applies the concept to the pre-Civil War period, rather than the post-Glorious Revolution period. The chapter focuses on charters for the incorporation of business corporations. At a basic level the puzzle is: if the state could not credibly commit to enforce or not to annual charters why were incorporators willing to pay for the charters and accompanying privileges? The chapter examines multiple mechanisms that could have succeeded in solving the commitment problem: reputation, type of charter activity and its organizational form, the law and judiciary, the extent of parliamentary or common law restraint on the sovereign and interest groups organizing to discourage default. Four case studies demonstrate how each of these mechanisms functioned. This chapter shows the usefulness of the ‘credible commitment’ framework. A nascent rule of law, unavailable elsewhere in Europe, explains the widespread use of charters and corporations in late Tudor and early Stuart England.

Number of Pages in PDF File: 28

Keywords: credible commitments, rule of law, charters, corporations, common law, property rights, monopoly, institutions

JEL Classification: B25, D72, G28, G3, K2, N23, N43, N83, O12, P16

working papers series