How did European merchants finance the commercial revolution? Established narratives highlight roles for reputation effects or the risk-sharing afforded by commenda contracts in enabling merchants to mobilize investment for long-distance trade. In contrast, this study illuminates tradeoffs merchants and their agents encountered in choosing between equity-like schemes (commenda) and debt financing. The study works out of a dataset of 1823 maritime contracts and 291 non-maritime contracts that span 3099 unique contracting dyads (principal–agent pairs). The study demonstrates that it was debt, not commenda, that financed trade on the informational frontiers of the trade economy. It further demonstrates that most trade was conducted through one-shot relationships, not relationships that unfolded over the course of repeated interactions. The results delimit the roles of both formal and relational enforcement mechanisms in enabling long-distance trade in environments that would seem hostile to exchange.
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