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Proof of Lemma 4: The Implicit Function Theorem also gives the first-order comparative statics of any parameter on ϕ(c2(y)), for any c2(y) at a solution. In particular, d ϕ(c2(y), λ) d k1 = − ∂Υ(c2(y),c2(x);λ) ∂k1 ∂Υ(c2(y),c2(x);λ) ∂c2(x) < 0 ∀c2(y) in the restricted set, (29) since U ′ (.) > 0, U ′′ (.) < 0 and the utility functions exhibit decreasing absolute risk-aversion (DARA). QED Therefore, the optimal allocation establishes c ∗ 2 (y) = k2 − k + y + ɛ with ɛ > 0. Step 2: Show that c∗ 2 (y) < k2. This follows from imposing the optimal sharing rule c∗ 2 (y) < c∗2 (x) to the ex-ante participation constraint of agent 1 holding with equality and noting that all individually rational allocations of agent 2’s consumption are upper-bounded by the ex- ante participation constraint of agent 1. Let c1(y) = w(y) − c2(y) ≤ k1−k+y, and, consequently, c2(y) ≥ (k1+k2−k+y)−k1+k−y = k2. Then, for E [U1[w(s) − c2(s)]] = E [U1[k1 − k + s]] to be satisfied, c1(¯x) = w(¯x) − c2(x) > k1 − k + ¯x. These, in turn, imply that c2(x) ≤ k2, which is in contradiction with the optimal sharing rule, c ∗ 2 (y) < c∗ 2 (x). References [1] Ackerberg D.A. and M. Botticini. “Endogenous Matching and the Empirical Determinants of Contract Form.” Journal of Political Economy, 110.3 (2002): 564-591. [2] Bensa, E. “Il Contratto di Asicurazione nel Medio Evo. Studi e Ricerche.” Genova: Tipografia Marittima Edittrice, 1884. [3] Bernstein, P.L. Against the Gods. The Remarkable Story of Risk. New York: John Wiley & Sons, 1996. [4] Byrne, E. H. “Commercial Contracts of the Genoese in the Syrian Trade of the Twelfth Century”. The Quarterly Journal of Economics, 31 (1917): 128-70. [5] De Roover, R. “The Organization of Trade” in Cambridge Economic History of Europe, Vol. 3, 42-118. Cambridge: CUP, 1963. [6] De Roover, F.E. “Early Examples of Marine Insurance.” The Journal of Economic History, 5 (1945): pp-172-200. [7] De Marzo, P.M. and D. Duffie. “Corporate Financial Hedging with Proprietary Information”, Journal of Economic Theory 53 (1991): 261-286. [8] Gale, D. and M, Hellwig. “Incentive-Compatible Debt Contracts: The One Period Problem.” Review of Economic Studies, 52 (1985): 647-663. [9] González de Lara, Y. “Institutions for Contract Enforcement and Risk-sharing: from Debt to Equity in Late Medieval Venice.” Working Paper Ente Einaudi, ??? 2004. 32
[10] González de Lara, Y. “The Secret of Venetian Sucess: the Role of teh State in Financial Markest” Working Paper IVIE ???, 2005 [11] Greif, A. “Reputation and Coalitions in Medieval Trade: Evidence on the Magribi Traders”. Journal of Economic History, 49 (1989): 857-82. [12] Greif, A. 1994b. ”On the Political Foundations of the Late Medieval Commercial Revolution: Genoa during the Twelfth and Thirteenth Centuries” The Journal of Economic History, 54.4, 271-287. [13] Greif, A. Institutions: Theory and History. Cambridge: CUP, forthcoming. [14] Harris, M. and A. Raviv. “The Theory of Capital Structure.” The Journal of Finance, 46.1 (1991): 297-355. [15] Hoover, C. B. “The Sea Loan in Genoa in the Twelfth Century.” Quarterly Journal of Economics, 40 (1926): 495-529. [16] Krueger, H. C. “The Genoese Merchant in the Twelfth Century.” Journal of Economic History, 22.2 (1963): 251-283. [17] Lacker, J. M. and J. A. Weinberg. “Optimal Contracts Under Costly Falsification”. Journal of Political Economy, 97.6 (1989): 1345-63. [18] Lane, F.C. Venice. A Maritime Repubic. Baltimore: The Johns Hopkins University Press, 1973. [19] Lane, F.C. Venice and History: the Collected Papers of Frederic C. Lane. Baltimore: The John Hopkins Press, 1966. [20] Leland H.E. and D.H. Pyle. “Informational Asymmetries, Financial Structure, and Financial Intermediation.” The Journal of Finance, XXXII.2 (1977): 371-387. [21] Lopez, R. The Commercial Revolution of the Middle Ages, 959-1350. Cambridge: Cambridge University press, 1976. [22] Luzzatto, G. “La Commenda nella Vita Economica dei Secoli XIII e XIV, con particolare risguardo a Venezia” in Atti della Mostra Bibliografica e Convegno Internazionale di Studi Storici dell Diritto Maritimo Medioevale, I, 139-164. Amalfi, and Napoli, 1943. [23] Marimon, R. “Mercados e Instituciones para el Intercambio” in Marimon, R. y X. Calsamiglia (Ed.), Invitación a la Teoría Económica. Barcelona: Ariel, 1991. [24] Mueller, R.C. The Venetian Money Market: Banks, Panics, and the Public Debt, 1200-1500. Baltimore: The Johns Hopkins University Press, 1997. [25] Pryor, J.H. “Mediterranean Commerce in the Middle Ages: A voyage under commenda”. Viator, 14 (1983): 132-194. [26] Rajan, R.R. and L. Zingales. “What do We Know about Capital Structure? Some Evidence from International Data.” The Journal of Finance, L.5 (1995): 1421-1460. [27] Smith, C.W. and R.M. Stulz. “The Determinants of Firms’ Hedging Policies”, Journal of Finance and Quantitative Analysis, 20.4 (1985): 391-405. [28] Tenenti, A. “L’assicurazione marittima” in Cracco G. and G. Ortalli. Storia di Venezia, Vol IV. Le Istituzioni, pp. 663-686. Roma: Istituto della Enciclopedia Italiana fondata da Giovanni Treccani, 1991. 33
Page 1 and 2: 1 Introduction The Birth of Insuran
Page 3 and 4: of hostile people, and to the inves
Page 5 and 6: utility from second-date consumptio
Page 7 and 8: in his enterity. In return for some
Page 9 and 10: ci(s) ≥ 0 ∀i, ∀s (3) ci(s)
Page 11 and 12: financier for the entire capital re
Page 13 and 14: power U 2. 10 It is worth to note,
Page 15 and 16: of budget constraints (k1 = 0). How
Page 17 and 18: project is highly costly and risky
Page 19 and 20: parties commit part of their wealth
Page 21 and 22: commenda) because the high risk and
Page 23 and 24: the agents’ ability to diversify,
Page 25 and 26: It is proved below that at a soluti
Page 27 and 28: Show that dc2(y) d(k2−k) = −
Page 29 and 30: Program 3 is concave so that Kuhn-T
Page 31: When the entrepreneur lacks the wea
Page 35 and 36: FIGURE 1 (Hidden Information, k1 =
Page 37: c1(y) ✛ FIGURE 5 (k1 > k, Two-sid

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