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Enforcement of nineteenth century banking contracts using a marriage rule

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  • Nair, Malavika
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    Abstract

    The enforcement of financial and banking contracts is commonly thought to lie within the domain of government law provision. This paper analyzes a case of self-enforcing financial contracts within a banking system in nineteenth century South India. The Chettiars, a merchant-banking caste, relied on religious homogeneity as well as an endogamous marriage rule, whereby members only married others from within the community, to enforce banking contracts within their system. Widely acknowledged to have been an important source of credit locally and throughout South East Asia, this paper describes and analyzes the enforcement mechanisms at work, in the absence of government involvement. Apart from presenting a new case of self-enforced financial contracts, this paper also represents a novel approach to interpreting the social institution of caste, as seen through the rational choice framework.

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    File URL: http://www.sciencedirect.com/science/article/pii/S1062976911000469
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    Bibliographic Info

    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 51 (2011)
    Issue (Month): 4 ()
    Pages: 360-367

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    Handle: RePEc:eee:quaeco:v:51:y:2011:i:4:p:360-367

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    Web page: http://www.elsevier.com/locate/inca/620167

    Related research

    Keywords: Self-enforcement; Financial contracts; Endogamy; Caste;

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    References

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    1. Akerlof, George A, 1976. "The Economics of Caste and of the Rat Race and Other Woeful Tales," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 599-617, November.
    2. James G. Scoville, 2003. "Discarding Facts: the Economics of Caste," Review of Development Economics, Wiley Blackwell, vol. 7(3), pages 378-391, 08.
    3. Stringham, Edward, 2003. "The extralegal development of securities trading in seventeenth-century Amsterdam," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 321-344.
    4. Greif, Avner, 1989. "Reputation and Coalitions in Medieval Trade: Evidence on the Maghribi Traders," The Journal of Economic History, Cambridge University Press, vol. 49(04), pages 857-882, December.
    5. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
    6. Powell, Benjamin & Stringham, Edward, 2009. "Public choice and the economic analysis of anarchy: a survey," MPRA Paper 26097, University Library of Munich, Germany.
    7. George A. Akerlof, 1978. "A theory of social custom, of which unemployment may be one consequence," Special Studies Papers 118, Board of Governors of the Federal Reserve System (U.S.).
    8. Leeson, Peter T., 2005. "Endogenizing fractionalization," Journal of Institutional Economics, Cambridge University Press, vol. 1(01), pages 75-98, June.
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