Luck, Human Agency, and Micro Institutions in Colonial Brazil Fernando Zanella United Arab Emirates University Dept. of Economics and Finance P. O. Box 17555 United Arab Emirates
[email protected] and Christopher Westley Jacksonville State University Dept. of Finance, Economics, and Accounting 700 Pelham Road, North Jacksonville, Alabama 36265
[email protected] Abstract Institutions, in a broad sense, are widely recognized as determinants of economic growth. However, individual behavior and micro institutions are sometimes overlooked by institutional economists in their search for broad patterns. At times, such outcomes are a weak reductionism of truly complex phenomena. Historians do pay more attention to individuals and historical idiosyncrasies, but not necessarily they master the economic tools. This paper explains the success of Brazilians’ earlier settlements as a mix of accident and design— a combination that greatly impacted trade, the conquest of the West, the definition of property rights and economic growth. By doing so, it stresses the limitations of applying an aggregate institutional interpretation of economic history and development. This paper applies the principal-agent model and its main feature, i.e., risk-sharing—an extreme case where the settlers and natives were risking their own lives while the Portuguese was seeking to reduce risks and transaction costs to maintain its Empire. Portuguese agents were extensively used to reduce uncertainties, to cut deals with the natives to secure settlements, to combat the Frenchmen, and to boost trade. JEL: B, N, O Key Words : Institutions ; Brazil Colonial ; Principal-Agent ; Settlers 1. Introduction Brazil’s first settlement, San Vicente, was led by Martin Alfonso de Souza, who received a land grant from the Crown called captaincy.