Chapter 3: Business organization and organizational innovation in late Medieval Italy
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Chapter 3 focuses on business organization and organizational innovation in late medieval Italy. It examines three organizational innovations defined by contract and law: first, the variety of credit instruments, from short-term loans to exchange contracts, available to medieval merchants; then the commenda contract, a form of commercial association that enabled both representation abroad and pooling of capital; and finally, the development of the compagnia as a modern partnership form. The chapter draws on modern economic and legal theory to argue that these developments helped set European merchants on a distinctive path of economic development that arguably explains the later economic success of the Latin West. The tale told here is not merely historical, but shows business people in the past addressing problems still central to organizational analysis, as they sought to devise mechanisms to address moral hazard and incomplete contracting, to lock in capital, and to shield their enterprises’ assets from both the owners’ creditors and the state.

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