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3
FORGING LINKS BETwEEN REGIONS
Trade Policy in Classical Athens
Mark WoolmerEconomists have long recognized that one of the principal explanations for
economic growth and development is the expansion of markets – in par-
ticular, international or interregional markets. Trade between different com-
munities allows for a more effective allocation of resources, specialization of
labor, technical development, and lower prices due to competition. However,
these markets do not operate in an institutional vacuum; they require infra-
structures in order to function and to provide merchants and their customers
with the assurance that all transactions will be fair and that all contracts will
be enforced.^1 It was therefore vital that Athens introduced institutions that not
only guaranteed the safety of visiting merchants but also reduced transaction
costs, thereby increasing the city’s attractiveness as a market.^2 Transaction costs,
which, broadly speaking, can be divided into two categories – tangible and
intangible – are a crucial factor when deciding whether to buy or sell prod-
ucts in a particular market. Tangible transaction costs can crudely be defined
as the monetary outlay associated with the exchange of goods or services
incurred when overcoming market imperfections. In Classical Athens transac-
tion costs could be incurred on account of formal rules (i.e., laws, decrees, or
customs), legal disputes (i.e., litigation or arbitration), sanctions (i.e., punish-
ments or limitations), exchange media (i.e., coins, weights, measures, contracts,
or sureties), facilities (i.e., marketplaces, communication, transport, storage or
security), and third-party rents (i.e., taxes, duties, or bribes). Intangible transac-
tion costs include bargaining costs (the costs required to come to an acceptable