Chapter

Interlinkage of Transactions and Rural Development

Pranab Bardhan and Christopher Udry

in Development Microeconomics

Published in print May 1999 | ISBN: 9780198773719
Published online November 2003 | e-ISBN: 9780191595929 | DOI: http://dx.doi.org/10.1093/0198773714.003.0009
 Interlinkage of Transactions and Rural Development

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Studies the economics behind the agrarian institutional arrangement of interlinked transactions. First, a model of credit‐labour interlinkage in which a landlord‐employer provides a loan to a peasant in the slack season as part of a contract that entails the latter working for him at a discount in the peak season is presented. This contract enables the landlord to extract the entire consumer surplus even though the effective interest rate charged is the landlord's opportunity cost of credit. Next, a model in which a lender‐trader obtains a farmer‐borrower's crop at a pre‐agreed price discount in exchange for providing the latter with capital, with the interlinkage in this case providing a way out of the credit market imperfection faced by the farmer, is studied. The last section of the chapter furthers this discussion on efficiency and surplus extraction by looking at some other studies of interlinked transactions, including a model of sharecropping‐cum‐credit under production uncertainty.

Keywords: agrarian institutions; contract; credit‐labour interlinkage; efficiency; interlinked transaction; market imperfection; surplus extraction

Chapter.  6091 words.  Illustrated.

Subjects: Economic Development and Growth

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