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

Jain, T and Sood, A (2012) How does Relationship-Based Governance Accommodate New Entrants? Evidence from the Cycle Rickshaw Rental Market. Working Paper. Indian School of Business, Hyderabad.

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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.

ISB Creators:
ISB CreatorsORCiD
Jain, TUNSPECIFIED
Item Type: Monograph (Working Paper)
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: 20 Jan 2015 10:31
URI: http://eprints.exchange.isb.edu/id/eprint/298
Publisher URL: http://www.isb.edu/
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