Solving the Principal-Agent Problem Through Apprenticeship: Evidence from Sixteenth-Century Germany

The principal-agent problem constituted a key challenge to pre-modern trade expansion: How did merchants cooperate over long distances without being cheated? Since Avner Greif’s theory on the multilateral reputation mechanism, scholarship has focused on the varying degrees to which merchants relied on public and private institutions to facilitate cooperation. This paper turns a new leaf by developing an alternative model: the ‘tenure-track-system’.  Based on the 16th century pan-European correspondence of the Nuremberg Tucher firm, it outlines how firms employed apprenticeship as a means to test and select reliable servants and partners. This allowed them to largely avoid free-riding and malfeasance.