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Bargaining and Contract Choice: Evidence from Informal Groundwater Contracts

Y. Yashodha

No 276035, 2018 Conference, July 28-August 2, 2018, Vancouver, British Columbia from International Association of Agricultural Economists

Abstract: Informal market arrangements are often in place when formal institutions are too weak to establish a formal mechanism for resource allocation. In this paper, we study informal groundwater contracts in India, in particular, the bargaining power of sellers and buyers. We conduct an economic experiment with actual buyers and sellers of groundwater contracts, where agents make a series of choices between output-shared and fixed-price contracts, first individually and then jointly. Output-shared contracts are chosen more often when the decision is joint. Further, the likelihood of choosing an output-shared contract depends on the relative risk preferences of sellers and buyers. Sellers have a strong influence in deciding the joint contract. However, buyers’ bargaining power increases when they share interpersonal relationships with sellers, such as kinship ties, or have a long contractual history together.

Keywords: Agricultural and Food Policy; Labor and Human Capital (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cta and nep-exp
Date: 2018-07
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