TY - JOUR
T1 - Governance and contract choice
T2 - Theory and evidence from groundwater irrigation markets
AU - Michler, Jeffrey D.
AU - Wu, Steven Y.
N1 - Funding Information:
? The authors owe a particular debt to Humnath Bhandari at International Rice Research Institute (IRRI), Dhaka, and Saidur Rahman at Bangladesh Agricultural University, Mymensingh, for assistance and support in conducting the fieldwork associated with this study. This work has benefited from helpful comments by Marc Bellemare, Michael Delgado, Ricard Gil, Anna Josephson, Bentley MacLeod, Ameet Morjaria, Stephen Martin, Juan Sesmero, Giorgio Zanarone, as well as seminar participants at the Society for Institutional and Organization Economics Annual Meeting, the 3rd Annual Workshop on Relational Contracts, the Midwest International Economic Development Conference, the Agricultural and Applied Economics Association Annual Meeting, the International Rice Congress, IFPRI, IRRI, the Africa School for Economics, Purdue University, University of Arizona, and University of Saskatchewan. Financial support for this project was provided by the Purdue Center for Global Food Security and IRRI, Los Ba?os, Philippines. An earlier version of this paper circulated under the title "The Effects of Governance on Relational and Formal Contracts."
Funding Information:
The authors owe a particular debt to Humnath Bhandari at International Rice Research Institute (IRRI), Dhaka, and Saidur Rahman at Bangladesh Agricultural University, Mymensingh, for assistance and support in conducting the fieldwork associated with this study. This work has benefited from helpful comments by Marc Bellemare, Michael Delgado, Ricard Gil, Anna Josephson, Bentley MacLeod, Ameet Morjaria, Stephen Martin, Juan Sesmero, Giorgio Zanarone, as well as seminar participants at the Society for Institutional and Organization Economics Annual Meeting, the 3rd Annual Workshop on Relational Contracts, the Midwest International Economic Development Conference, the Agricultural and Applied Economics Association Annual Meeting, the International Rice Congress, IFPRI, IRRI, the Africa School for Economics, Purdue University, University of Arizona, and University of Saskatchewan. Financial support for this project was provided by the Purdue Center for Global Food Security and IRRI, Los Baños, Philippines. An earlier version of this paper circulated under the title "The Effects of Governance on Relational and Formal Contracts."
Publisher Copyright:
© 2020 Elsevier B.V.
PY - 2020/12
Y1 - 2020/12
N2 - This paper examines the role governance institutions play in the adoption of contracts. We develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in Bangladesh. A distinguishing feature of this market is the variety of village-level institutions which impose different degrees of punishment for contract violation. Consistent with the model, we find households adopt contracts that rely on unverifiable outcomes, which are not formally contractible, when punishment for contract violation is weak. Conversely, households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe. This evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible.
AB - This paper examines the role governance institutions play in the adoption of contracts. We develop a simple model of the contracting relationship in a setting where unverifiable outcomes exist and use it to interpret data on groundwater irrigation contracts in Bangladesh. A distinguishing feature of this market is the variety of village-level institutions which impose different degrees of punishment for contract violation. Consistent with the model, we find households adopt contracts that rely on unverifiable outcomes, which are not formally contractible, when punishment for contract violation is weak. Conversely, households adopt contracts that rely on formally contractible and verifiable outcomes when punishment is severe. This evidence is consistent with contract terms being chosen optimally given what is or is not formally contractible.
KW - Bangladesh
KW - Contract enforcement
KW - Formal and relational contracting
KW - Institutions
KW - Verifiability problem
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U2 - 10.1016/j.jebo.2020.09.031
DO - 10.1016/j.jebo.2020.09.031
M3 - Article
AN - SCOPUS:85092920233
VL - 180
SP - 129
EP - 147
JO - Journal of Economic Behavior and Organization
JF - Journal of Economic Behavior and Organization
SN - 0167-2681
ER -