How does relationship-based governance accommodate new entrants? Evidence from the cycle rickshaw rental market

Tarun Jain and Ashima Sood

MPRA Paper from University Library of Munich, Germany

Abstract: 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.

Keywords: Urban informal sector; Contract enforcement; Rural to urban migration (search for similar items in EconPapers)
JEL-codes: J61 L14 L92 O15 O17 O18 R23 (search for similar items in EconPapers)
Date: 2012-02-08
New Economics Papers: this item is included in nep-iue and nep-mig
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Journal Article: How does relationship-based governance accommodate new entrants? Evidence from the cycle-rickshaw rental market (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:37424

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