Contracts, Hold-Up, and Exports: Textiles and Opium in Colonial India
نویسندگان
چکیده
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 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 East India Company’s cotton textile venture, the famous Opium Monopoly, and present-day contract farming. *Kranton: Department of Economics, University of Maryland, College Park, MD 20742; Swamy: Department of Economics, Williams College, Williamstown, MA 01267. We thank an anonymous referee for comments, and Joe Altonji, Cheryl Doss, Doug Gollin, Santhi Hejeebu, participants at the Yale Development Lunch, ESSET 2006, 75 Years of Development Economics Conference at Cornell, Third Mini-conference in Development CIRPÉE/LAVAL, World Bank Microeconomics of Growth conference, seminars at University of Arkansas, Columbia, Drexel, Duke, MIT, UCL, and the Institute for Advanced Study for helpful suggestions and discussion. We thank Natalia Perez for her research assistance. Rachel Kranton thanks the Institute for Advanced Study, Princeton’s Research Program in Development Studies, and the National Science Foundation for support.
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