Limited Commitment and Moral Hazard in Late Classical Athenian Maritime Loans
Posted: 20 Mar 2011
Date Written: April 14, 2008
Maritime loans in late classical and early Hellenistic Athens stand out by their high annualised interest rate usually ranging between 60 and 100%. Evaluating the information about loan contracts given in legal speeches delivered in Athenian courts during the 4th century BC, I claim that this high interest rate reflects informational problems. In particular, I argue that a combination of only partially enforceable contracts, lack of lenders’ ability to monitor borrowers and a special Athenian law freeing the borrower from repayment in case of shipwreck or piracy gave rise to a serious moral hazard problem. A simple game theoretic model that incorporates this problem is formulated and found to be able to explain the data at reasonable parameter calibrations.
JEL Classification: E32
Suggested Citation: Suggested Citation