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

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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 operations in colonial Bengal. Our model and the historical record stress two difficulties: the exporter and its agents might not uphold pricing 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 East India Company's textile venture, the famous Opium Monopoly, and present-day contract farming.

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File URL: http://web.williams.edu/Economics/wp/swamytextileopiumdecember2006final.pdf
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Bibliographic Info

Paper provided by Department of Economics, Williams College in its series Department of Economics Working Papers with number 2006-05.

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Length: 37 pages
Date of creation: Dec 2006
Date of revision:
Publication status: published in American Economic Review, June 2008, v. 98, iss. 3, pp. 967-89.
Handle: RePEc:wil:wileco:2006-05

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Cited by:
  1. Delpeuch, Claire & Vandeplas, Anneleen & Swinnen, Johan F.M., 2010. "Revisiting the “Cotton Problem”: A comparative analysis of cotton reforms in Sub-Saharan Africa," 84th Annual Conference, March 29-31, 2010, Edinburgh, Scotland 62042, Agricultural Economics Society.
  2. Rocco Macchiavello, 2009. "Vertical Integration and Investor Protection in Developing Countries," Working Papers 2009.86, Fondazione Eni Enrico Mattei.
  3. Jorge Balat & Irene Brambilla & Guido Porto, 2007. "Realizing the Gains From Trade: Export Crops, Marketing Costs, and Poverty," NBER Working Papers 13395, National Bureau of Economic Research, Inc.
  4. Rocco Macchiavello, 2007. "Vertical Integration, Missing Middle and Investor Protection in Developing Countries," Economics Series Working Papers 373, University of Oxford, Department of Economics.
  5. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
  6. Deb, Rahul & Suri, Tavneet, 2013. "Endogenous emergence of credit markets: Contracting in response to a new technology in Ghana," Journal of Development Economics, Elsevier, vol. 101(C), pages 268-283.
  7. Swinnen Johan & Vandeplas Anneleen, 2012. "Rich Consumers and Poor Producers: Quality and Rent Distribution in Global Value Chains," Journal of Globalization and Development, De Gruyter, vol. 2(2), pages 1-30, January.
  8. Depetris Chauvin, Nicolas & Porto, Guido G., 2011. "Market Competition in Export Cash Crops and Farm Income," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126159, International Association of Agricultural Economists.
  9. Macchiavello, Rocco, 2010. "Development Uncorked: Reputation Acquisition in the New Market for Chilean Wines in the UK," CEPR Discussion Papers 7698, C.E.P.R. Discussion Papers.

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