A social-leverage mechanism on the Silk Road: the private emergence of institutions in central Asia, from the 7th to the 9th century

Abstract

AbstractWe explain archaeological evidence ofSogdianmerchants in central Asia in early medieval, remote long-distance trade on the emerging Silk Road. In fact, it began as barter, but was based on the social organization that Sogdians developed in their communities when migrating east. Their particular way of generating trust and institutionalized cooperation was by social leverage, involving third parties as contract witnesses and/or guarantors. These usually had own commercial relations with the contractors, facilitating crediting and exchange – and credible threat to defectors. While Greif (1989) had been criticized for overlooking courts in the Maghribi case, we discuss a differentiated (latent) role for courts. We also discuss property rightsversuspossession, transactions costs and price implications. We analyze the mechanism in historical cases and game-theoretical reconstructions, and explain trade flourishing under strong uncertainty.