Contracts, hold-up, and exports: Textiles and opium in colonial India
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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.
Published Version (Please cite this version)10.1257/aer.98.3.967
Publication InfoKranton, Rachel E; & Swamy, AV (2008). Contracts, hold-up, and exports: Textiles and opium in colonial India. American Economic Review, 98(3). pp. 967-989. 10.1257/aer.98.3.967. Retrieved from http://hdl.handle.net/10161/1736.
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James B. Duke Professor of Economics
Rachel Kranton studies how institutions and the social setting affect economic outcomes. She develops theories of networks and has introduced identity into economic thinking. Her research contributes to many fields including microeconomics, economic development, and industrial organization. In Identity Economics, Rachel Kranton and collaborator George Akerlof, introduce a general framework to study social norms and identity in economics. In the economics of networks, Rachel Kranton develop