Enforcing Property Rights through Reputation: Mexico’s Early Industrialization, 1878-1913
Author(s)
Maurer, Noel; Sharma, Tridib
Abstract
Mexico’s initial industrialization was based on firms that were grouped: that is linked to other firms through close affiliations with a common bank. Most explanations for the prevalence of groups are based on increasing returns or missing formal capital markets. We propose a simpler explanation that better fits the facts of Mexican history. In the absence of secure property rights, tangible collateral could not credibly be offered to creditors; but there remained the possibility of using reputation as a form of intangible collateral. In such circumstances, firms had incentives to group together for purposes of mutual monitoring and insurance.
