Source: Dissertation Abstracts International, Volume: 75-09(E), Section: A.

Adviser: Timothy Guinnane.

This dissertation uses economic theory and primary evidence to examine legal institutions' impact on Middle Eastern economic history. The first two chapters explore multiplicity of legal systems in the Ottoman Empire. The third chapter analyzes business dynamics in early twentieth-century Egypt.

Legal Pluralism in the Ottoman Empire Throughout the eighteenth and nineteenth centuries, non-Muslim Ottomans paid large sums to become European proteges, thus allowing them to use European law for contracting and litigation. These proteges came to dominate Ottoman trade, and pushed Muslims and Europeans out of commerce. At the same time, the Ottoman firm remained primarily a family enterprise.

Chapter 2 shows that the coexistence of many legal systems, "legal pluralism," explains keys questions in Ottoman economic history. I develop a bilateral trade model with multiple legal systems under which agents could contract and later contest contracts. The model delivers four results. First, legal pluralism reduces contract credibility by creating enforcement uncertainty. This leads to underinvestment and explains small capitalization in Ottoman partnerships. Second, there is an option value to acquiring access to additional legal systems. The option value explains why non-Muslim Ottomans paid substantial sums to acquire access to European law. Forum-shopping incentives drove such protection acquisition since non-Muslims bought multiple protections simultaneously to enhance their position if they defaulted. Third, in a competitive contracts market, where a subpopulation has access to additional legal systems, agents who have access to fewer jurisdictions exit the market. Thus, forum shopping resolves a key puzzle: why non-Muslim Ottomans who obtained European protection dominated Ottoman commerce and drove both Muslims and Europeans out of trade. I also briefly consider nineteenth-century Morocco, which had legal pluralism but did not restrict access to a certain subpopulation. Hence, no single group dominated Moroccan commerce. Finally, Chapter 1 explains why Ottoman legal reforms, including the addition of the French commercial code in 1850, failed to reverse these outcomes.

Chapter 3 analyzes a particular facet of Ottoman legal pluralism: the sale of exemption licenses called berats. These licenses granted their bearers tax deductions as well the option to use European law for contracting and litigation. I use diplomatic correspondence, chancery registers, merchant letter books and dispute data from the British, French and Ottoman archives to construct a novel price panel for British and French licenses. The price data support five conclusions. First, berats cost on average 55 times the annual Ottoman GDP per capita in 1800. Second, the present discounted value of tax exemptions cannot explain berat prices. Third, the systematic and statistically significant variation in berat prices reflects ambassadors' influence at the Ottoman court, rather than differences in substantive law. Fourth, berat holders exploited their legal privileges by engaging in opportunistic forum shopping, which appeared in about 48% of disputes involving berat holders. Fifth, agents tried to obtain multiple berats in order to expand their legal options, as predicted by the model. This evidence shows that non-Muslim Ottomans acquired berats to obtain access to European jurisdictions, which enhanced their ability to forum shop. This advantage allowed berat holders to dominate Ottoman commerce by the end of the eighteenth century.

Chapter 4 uses novel firm-level data in early twentieth-century Egypt to examine organizational dynamics and enterprise forms. In 1876, Egypt established a judicial system called the Mixed Courts, which largely applied the French commercial code and aimed to solve the problems associated with legal pluralism. I construct a cohort of firms between 1910 and 1921 using extracts of partnership agreements and dissolutions which the Mixed Courts published. Within this cohort, the majority of business associations preferred to organize their enterprises as partnerships. Survival analysis on this cohort reveals that partnerships have a high risk of failure in the beginning. Dissolution likelihood drops and becomes uniform conditional on surviving the first few years. Corporations are associated with a lower failure risk overall, and their hazard function is broadly uniform. I interpret the findings through a multi-armed bandit model. Partners learn about their association's quality by going through an experimentation period. Agents dissolve the firms and switch to new partners if their updated beliefs about match quality is sufficiently pessimistic. Thus, partnerships that survive this trial period are more stable and productive.