Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India
Rachel Kranton, Anand V. Swamy
American Economic Review · 2008 · Volume 98 · Issue 3
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.
Keywords
Economics of Contract: Theory, Other Consumer Nondurables, Economic Development: Agriculture, Natural Resources, Energy, Environment, Other Primary Products, International Linkages to Development, Role of International Organizations, Agricultural Markets and Marketing, Cooperatives, Agribusiness, Economic History: Manufacturing and Construction: Asia including Middle East, Economic History: Transport, Trade, Technology, and Other Services: Asia including Middle East
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