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American Economic Review: Vol. 98 No. 3 (June 2008)

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Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India

Article 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.98.3.967

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.

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Authors

Kranton, Rachel (Duke U)
Swamy, Anand V. (Williams College)

JEL Classifications

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


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