How does Relationship-Based Governance Accommodate New Entrants? Evidence from the Cycle Rickshaw Rental Market

Jain, T and Sood, A (2017) How does Relationship-Based Governance Accommodate New Entrants? Evidence from the Cycle Rickshaw Rental Market. Journal of Institutional Economics, 13 (3). pp. 673-697.

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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 multi-dimensional 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.

Affiliation: Indian School of Business
ISB Creators:
ISB CreatorsORCiD
Jain, Thttps://orcid.org/0000-0002-2634-7614
Item Type: Article
Uncontrolled Keywords: Urban informal sector, Contract enforcement, Rural to urban migration
Subjects: Business and Management
Depositing User: Veeramani R
Date Deposited: 16 Nov 2014 22:03
Last Modified: 05 Oct 2018 07:25
URI: http://eprints.exchange.isb.edu/id/eprint/298
Publisher URL: http://dx.doi.org/0.1017/S1744137416000424
Publisher OA policy: http://www.sherpa.ac.uk/romeo/issn/1744-1374/
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