Emergence of Modern Impersonal Exchange: Role of Formalization in the Rise of Modern Capitalism

30 Pages Posted: 19 Sep 2017 Last revised: 15 Apr 2019

See all articles by Prateek Raj

Prateek Raj

Indian Institute of Management (IIMB), Bangalore; University of Chicago - George J. Stigler Center for the Study of the Economy and the State; University College London - School of Management

Date Written: February 22, 2019

Abstract

I develop an evolutionary framework to study when firms formalize and voluntarily establish internal “order and discipline” in their conduct, in a traditional relational economy, to conduct impersonal market-based exchange. Impersonal exchange can emerge if benefit from doing business at arm’s length is large (utility condition), and if firms above a threshold adopt such formalization (formalization condition). Cycles, where formalization and impersonal exchange follows opportunism and cautious relational exchange, characterize impersonal exchange. I also discuss the endogenous emergence of market-supporting public institutions, and the rise of impersonal markets in sixteenth century Northwestern Europe.

Keywords: Evolutionary Theory, Routines, Emerging Markets, Formalization, Standardization

JEL Classification: A13, A14, C73, N93, Z13

Suggested Citation

Raj, Prateek, Emergence of Modern Impersonal Exchange: Role of Formalization in the Rise of Modern Capitalism (February 22, 2019). Available at SSRN: https://ssrn.com/abstract=3033861 or http://dx.doi.org/10.2139/ssrn.3033861

Prateek Raj (Contact Author)

Indian Institute of Management (IIMB), Bangalore ( email )

Bannerghatta Road
Bangalore, Karnataka 560076
India
+918026993123 (Phone)

HOME PAGE: http://www.iimb.ac.in/profile/77

University of Chicago - George J. Stigler Center for the Study of the Economy and the State ( email )

Walker Hall
Chicago, IL 60637
United States

University College London - School of Management ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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