Jain, Tarun and Sood, Ashima (2012): How does relationship-based governance accommodate new entrants? Evidence from the cycle rickshaw rental market.
Download (151kB) | Preview
A large theoretical and empirical literature suggests that the salience of network-based ties in contract enforcement under relation-based governance systems limits market expansion. This paper illustrates the incorporation of new agents into market exchange under conditions of informal contract governance using a case study of the cycle-rickshaw rental market in a city in central India. Our analytical model formalizes features of this market through a higher penalty of default for migrants that introduces a gap between the ex ante risk for out-of-network agents and the ex post risk. The model predicts a sorting equilibrium such that migrants are more likely to participate in the rental contract. We test this prediction using primary survey data with multidimensional measures of migrant status and find that it is a significant predictor of rental contract participation, even controlling for credit access and other variables that moderate the rickshaw driver’s ability to own a cycle-rickshaw.
|Item Type:||MPRA Paper|
|Original Title:||How does relationship-based governance accommodate new entrants? Evidence from the cycle rickshaw rental market|
|Keywords:||Urban informal sector; Contract enforcement; Rural to urban migration|
|Subjects:||L - Industrial Organization > L1 - Market Structure, Firm Strategy, and Market Performance > L14 - Transactional Relationships ; Contracts and Reputation ; Networks
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O18 - Urban, Rural, Regional, and Transportation Analysis ; Housing ; Infrastructure
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O17 - Formal and Informal Sectors ; Shadow Economy ; Institutional Arrangements
L - Industrial Organization > L9 - Industry Studies: Transportation and Utilities > L92 - Railroads and Other Surface Transportation
O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O15 - Human Resources ; Human Development ; Income Distribution ; Migration
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, Vacancies, and Immigrant Workers > J61 - Geographic Labor Mobility ; Immigrant Workers
R - Urban, Rural, Regional, Real Estate, and Transportation Economics > R2 - Household Analysis > R23 - Regional Migration ; Regional Labor Markets ; Population ; Neighborhood Characteristics
|Depositing User:||Tarun Jain|
|Date Deposited:||18 Mar 2012 02:10|
|Last Modified:||23 Aug 2016 06:41|
Allen, F. (1983). Credit rationing and payment incentives. Review of Economic Studies 50(4), 639–646.
Basu, K. (1997). Analytical Development Economics: The Less Developed Economy Revisited. Cambridge MA: MIT Press.
Basu, K. and C. Bell (1991). Fragmented duopoly: Theory and applications to backward agriculture. Journal of Development Economics 36(2), 145–165.
Breman, J. (1993). Beyond patronage and exploitation: Changing agrarian relations in south Gujarat. New Delhi: Oxford University Press.
Breman, J. (1996). Footloose labour: Working in India’s informal economy. Cambridge UK: Cambridge University Press.
Cooter, R. and J. Landa (1984). Personal versus impersonal trade: The size of trading groups and contract law. International Review of Law and Economics 4(1), 15–22.
Corporation, B. M. (2009). About city. http://www.bmcbilaspur.com/aboutcity.htm.
Dixit, A. (2003). Trade expansion and contract enforcement. Journal of Political Economy 111(6), 1293–1317.
Dixit, A. (2009). Governance institutions and economic activity. American Economic Review 99(1), 5–24.
Fafchamps, M. (1996). The enforcement of commercial contracts in Ghana. World Development 24(3), 427–448.
Fafchamps, M. (2001). The role of business networks in market development in sub-Saharan Africa. Oxford University Press.
Fafchamps, M. (2002). Spontaneous market emergence. The BE Journal of Theoretical Economics 2(1), 2.
Farrington, J. and P. Deshingkar (2009). Circular Migration and Multilocational Livelihood Strategies in Rural India. New Delhi: Oxford University Press.
Geertz, C. (1978). The bazaar economy: Information and search in peasant marketing. American Economic Review 68(2), 28–32.
Greif, A. (1993). Contract enforceability and economic institution in early trade: The Maghribi Traders Coalition. American Economic Review 83(3), 525–548.
Greif, A. (1997). On the social foundations and historical development of institutions that facilitate impersonal exchange: From the community responsibility system to individual legal responsibility in pre-modern Europe. Stanford University Working Paper 97-016.
Hallagan, W. (1978). Self-selection by contractual choice and the theory of sharecropping. The Bell Journal of Economics 9(2), 344–354.
Harris, J. and M. Todaro (1970). Migration, unemployment and development: A two-sector analysis. American Economic Review 60(1), 126–142.
Hayami, Y., M. Kikuchi, and K. Otsuka (1986). Community and market in contract choice: The jeepney in the Philippines. Economic Development and Cultural Change 34(2), 279–298.
Kalsbeek, W. (1986). Nomad sampling: An analytic study of alternative design strategies. Proceedings of the Annual Meeting of the American Statistical Association, 164–9.
Kalton, G. (2001). Practical methods for sampling rare and mobile populations. Proceedings of the Annual Meeting of the American Statistical Association, 5–9.
Kandori, M. (1992). Social norms and community enforcement. Review of Economic Studies 59(1), 63–80.
Kishwar, M. (2001). License-Quota-Raid Raj: Economic warfare against rickshaw owners and pullers. Manushi 125.
Kurosaki, T., Y. Sawada, A. Banerji, and S. Mishra (2007). Rural-urban migration and urban poverty: Socio-economic profiles of rickshaw pullers and owner-contractors in North-East Delhi.
Li, J. (2003). Relation-based versus rule-based governance: An explanation of the East Asian miracle and Asian crisis. Review of International Economics 11, 651–673.
Lindbeck, A., S. Nyberg, and J. Weibull (1999). Social norms and economic incentives in the welfare state. Quarterly Journal of Economics 114(1), 1–35.
Macours, K. (2004). Ethnic divisions, contract choice and search costs in the Guatemalan land rental market. Johns Hopkins University SAIS working paper.
McKenzie, D. and J. Mistiaen (2007). Surveying migrant households: A comparison of census-based, snowball and intercept point surveys. Policy Research Working Paper Series 4419, The World Bank.
McMillan, J. and C. Woodru (1999). Interfirm relationships and informal credit in Vietnam. Quarterly Journal of Economics 114(4), 1285–1320.
Menon, S. (2000). The relentless struggle of rickshaw pullers. Labour File 6(8 and 9).
Mishra, A. (1994). Clientelization and fragmentation in backward agriculture: Forward induction and entry deterrence. Journal of Development Economics 45(2), 271–285.
Mitra, A. (2006). Urban informal sector and networks: A case study of Delhi slum dwellers. In B. Guha-Khasnobis and R. Kanbur (Eds.), Informal labour markets and development, pp. 136–154. WIDER-Palgrave.
Mitra, S. (2002). Lessons in regulating the informal sector: The case of rickshaw pullers’ sector in Delhi. Indian Journal of Labour Economics 45(2), 387–94.
Rao, V. (2002). Experiments in participatory econometrics: Improving the connection between economic analysis and the real world. Economic and Political Weekly 22(20), 1887–1891.
Singh, A. (2000). Rickshaw to the puller. Labour File 6(8 and 9).
Sood, A. (2008). Three Essays on the Cycle Rickshaw Rental Market: Informal Markets and Institutions in a City in Central India. Ph. D. thesis, Cornell University.
Udry, C. (2003). Fieldwork, economic theory, and research on institutions in developing countries. American Economic Review 93(2), 107–111.
Venkatesan, V. (2010, February). Licence to live. Frontline 27(5).