Insecurity is a basic problem for all commerce. Pirates may attack ships, bandits hold up caravans, thieves break into storehouses. Enemy navies may board vessels, soldiers loot wagons, customs officers impound merchandise, rulers arrest traders or declare their goods forfeit. The merchant risks not only losing property but suffering bodily harm – imprisonment, injury, death. Such attacks increase costs, and if their probability is too high, merchants will refrain from trade, harming the wider economy.

Risk of attack creates a demand for institutional arrangements to improve commercial security. But security is a public good, which can make it difficult for private providers to supply in markets. For one thing, security is often ‘non-excludable’: once a police force, naval patrol or fortification is created to protect one merchant, it is hard to prevent others from enjoying it without charge. Second, it is frequently ‘non-rival’: providers often incur no higher costs by providing security to additional merchants. Consequently, the private benefits of providing security are often less than its social benefits, so it may be under-provided by private individuals transacting in markets.