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

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  • Rachel Kranton
  • Anand V. Swamy

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.

Suggested Citation

  • Rachel Kranton & Anand V. Swamy, 2008. "Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India," American Economic Review, American Economic Association, vol. 98(3), pages 967-989, June.
  • Handle: RePEc:aea:aecrev:v:98:y:2008:i:3:p:967-89
    Note: DOI: 10.1257/aer.98.3.967
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    Cited by:

    1. Madestam, Andreas, 2014. "Informal finance: A theory of moneylenders," Journal of Development Economics, Elsevier, vol. 107(C), pages 157-174.
    2. Delpeuch, Claire & Vandeplas, Anneleen, 2013. "Revisiting the “Cotton Problem”—A Comparative Analysis of Cotton Reforms in Sub-Saharan Africa," World Development, Elsevier, vol. 42(C), pages 209-221.
    3. Blouin, Arthur & Macchiavello, Rocco, 2018. "Strategic Default in the International Coffee Market," CAGE Online Working Paper Series 369, Competitive Advantage in the Global Economy (CAGE).
    4. repec:aea:aejmic:v:9:y:2017:i:3:p:28-62 is not listed on IDEAS
    5. 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.
    6. 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.
    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. Lorenzo Casaburi & Rocco Macchiavello, 2015. "Loyalty, Exit, and Enforcement: Evidence from a Kenya Dairy Cooperative," American Economic Review, American Economic Association, vol. 105(5), pages 286-290, May.
    9. Balat, Jorge & Brambilla, Irene & Porto, Guido, 2009. "Realizing the gains from trade: Export crops, marketing costs, and poverty," Journal of International Economics, Elsevier, vol. 78(1), pages 21-31, June.
    10. Kala Krishna & Lena Sheveleva, 2014. "Wheat or Strawberries? Intermediated Trade with Limited Contracting," NBER Working Papers 20630, National Bureau of Economic Research, Inc.
    11. Macchiavello, Rocco, 2010. "Vertical integration and investor protection in developing countries," Journal of Development Economics, Elsevier, vol. 93(2), pages 162-172, November.
    12. Tirthankar Roy, 2011. "Indigo and law in colonial India," Economic History Review, Economic History Society, vol. 64(s1), pages 60-75, February.
    13. Alexander M. Danzer & Robert Grundke, 2016. "Coerced Labor in the Cotton Sector: How Global Commodity Prices (Don't) Transmit to the Poor," CESifo Working Paper Series 5937, CESifo Group Munich.
    14. Rocco Macchiavello & Ameet Morjaria, 2015. "Competition and Relational Contracts: Evidence from Rwanda's Coffee Mills," 2015 Meeting Papers 431, Society for Economic Dynamics.
    15. 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.
    16. Rocco Macchiavello, 2007. "Vertical Integration, Missing Middle and Investor Protection in Developing Countries," Economics Series Working Papers 373, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L67 - Industrial Organization - - Industry Studies: Manufacturing - - - Other Consumer Nondurables: Clothing, Textiles, Shoes, and Leather Goods; Household Goods; Sports Equipment
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness
    • N65 - Economic History - - Manufacturing and Construction - - - Asia including Middle East
    • N75 - Economic History - - Economic History: Transport, International and Domestic Trade, Energy, and Other Services - - - Asia including Middle East

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