San Gior­gio (1407–1805) was a for­mal asso­cia­ti­on aimed at pro­tec­ting cre­di­tors’ rights and redu­cing the risk of debt repu­dia­ti­on by the Repu­blic of Gen­oa. The beha­vi­or of this insti­tu­ti­on is broad­ly con­sis­tent with debt models that pre­dict len­ding if len­ders can impo­se big pen­al­ties on debt- ors, and models in which len­ders can dif­fe­ren­tia­te bet­ween excusable and inex­cusable defaults. San Gior­gio share­hol­ders enjoy­ed low cre­dit risk but also lower returns on capi­tal than tho­se pre­vai­ling on com­pa­ra­ble for­eign assets for which cre­di­tors’ pro­tec­tion mecha­nisms were lack­ing. The Republic’s quid pro quo was a low cost of finan­cing. Dif­fe­ren­ces in cre­dit risk were an important expl­ana­ti­on of dif­fe­ren­ces in long-term inte­rest rates across count­ries in 16^th and 17^th cen­tu­ry Euro­pe, a point not suf­fi­ci­ent­ly empha­si­zed by the literature.

Quel­le /​ Link: Govern­ment Debt, Repu­ta­ti­on and Cre­di­tors’ Pro­tec­tions: The Tale of San Giorgio