Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India
American Economic Review
vol. 98,
no. 3, June 2008
(pp. 967-89)
Abstract
Trade and export, it is argued, spur economic growth. This paper studies the microeconomics of exporting. We build a heuristic model of transactions between exporters and producers and relate it to East India Company (EIC) operations in colonial Bengal. Our model and the historical record stress two difficulties: the exporter and its agents might not uphold payment agreements, and producers might not honor sales contracts. The model shows when procurement succeeds or fails, highlighting the tension between these two hold-up problems. We analyze several cases, including the EIC's cotton textile venture, the famous Opium Monopoly, and present-day contract farming.Citation
Kranton, Rachel, and Anand V. Swamy. 2008. "Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India." American Economic Review, 98 (3): 967-89. DOI: 10.1257/aer.98.3.967JEL Classification
- D86 Economics of Contract: Theory
- L67 Other Consumer Nondurables
- O13 Economic Development: Agriculture; Natural Resources; Energy; Environment; Other Primary Products
- O19 International Linkages to Development; Role of International Organizations
- Q13 Agricultural Markets and Marketing; Cooperatives; Agribusiness
- N65 Economic History: Manufacturing and Construction: Asia including Middle East
- N75 Economic History: Transport, Trade, Energy, Technology, and Other Services: Asia including Middle East