Interlinked Contracts: An Empirical Study
Resource
Economica.
Journal
Economica
Pages
350-377
Date Issued
2009-09
Date
2009-09
Author(s)
Abstract
This study investigates contractual relations between farmers and sugar mills in Japanese colonial Taiwan. Our investigation is based on a model of interlinked contracts that is adapted from Gangopadhyay and Sengupta (1998). The validity of our model's predictions is verified by analysing a dataset consisting of contracts between Taiwan's cane farmers and sugar mills. Our data suggest that the contractual relationship is consistent with a scenario in which the interest rates charged by sugar mills on cash loans to farmers are set in order to prevent the diversion of funds to other uses.
Type
journal article