Throughout the eighteenth and nineteenth centuries, non-Muslim Ottomans paid large sums to acquire access to European law. These protégés came to dominate Ottoman trade and pushed Muslims and Europeans out of commerce. At the same time, the Ottoman firm remained primarily a small, family enterprise. The literature argues that Islamic law is the culprit. However, adopting European law failed to improve economic outcomes. This paper shows that the co-existence of multiple legal systems, “legal pluralism,” explains key questions in Ottoman economic history. I develop a bilateral trade model with multiple legal systems and first show that legal pluralism leads to underinvestment by creating enforcement uncertainty. Second, there is an option value of additional legal systems, explaining why non-Muslim Ottomans sought to acquire access to European law. Third, in a competitive market where a subpopulation has access to additional legal systems, agents who have access to fewer jurisdictions exit the market. Thus, forum shopping explains protégés’ dominance in trade. Finally, the paper explains why the introduction of the French commercial code in 1850 failed to reverse these outcomes.

 

Cihan Artunç is an Assistant Professor of Economics at the University of Arizona. His main research interests are economic history, and law and economics. His research agenda examines the economic implications of legal institutions using microeconomic theory, with a particular focus on the Ottoman Empire's legal framework, commercial law, and business enterprise forms. Cihan received his Ph.D. in Economics from Yale University in 2014. His dissertation examines the co-existence of multiple legal systems and its economic implications in the Ottoman Empire, including the sale of access to European law in the eighteenth century. His current research studies partnerships and corporations in Egypt between 1910 and 1949. One aspect of this project addresses partnership formation and dissolution, and how the ease of dissolution allowed partners to engage in beneficial experimentation with different partners.

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