Credit Markets and Pledging in Medieval England

How can credit markets function in weakly institutionalized economies? The authors study rural credit markets in medieval England. Combining archival evidence from manorial court records with a model they examine the role played by personal sureties or pledges in enforcing contracts and overcoming asymmetric information. Pledging (1) widened the circle of individuals to whom a lender could extend credit thus augmenting the limited institutional capacity of courts, and (2) generated information on the quality of borrowers thereby alleviating the problem of adverse selection. They authors find that informal private-order arrangements could complement, as well as substitute for, formal, public, institutions.

Read the working paper at Economic and Social History at Cambridge.