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Journal ArticleDOI

Impediments to contract enforcement in day labour markets: a perspective from India

01 Sep 2016-Journal of Institutional Economics (Cambridge University Press)-Vol. 12, Iss: 3, pp 651-676
TL;DR: In this paper, the authors focus on one such setting in India's urban informal economy: the "day labour" market for casual labour, and find considerable incidence of contract enforcement problems in the form of employers reneging on wage payments to labourers.
Abstract: In developing countries, lack of formal contract enforcement mechanisms is compensated by informal governance enforced through trust, kinship, reputation, etc. This paper focuses on one such setting in India's urban informal economy: the ‘day labour’ market for casual labour. We survey seven such markets in Navi Mumbai (a city on the outskirts of Mumbai), and find considerable incidence of contract enforcement problems in the form of employers reneging on wage payments to labourers. We find that payments to labourers with access to social networks and a record of work done are less likely to be reneged. Further, consistent with the literature on the limits of informal enforcement, we find that labourers in large markets, with greater linguistic and caste-based diversity, are more likely to be reneged. We argue that interventions aimed at facilitating access to formal mechanisms might help overcome some of the limitations with informal enforcement.

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Citations
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Posted Content
01 Jan 2012
TL;DR: The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray as discussed by the authors, and a good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan's economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker's Rule.
Abstract: The 2008 crash has left all the established economic doctrines - equilibrium models, real business cycles, disequilibria models - in disarray. Part of the problem is due to Smith’s "veil of ignorance": individuals unknowingly pursue society’s interest and, as a result, have no clue as to the macroeconomic effects of their actions: witness the Keynes and Leontief multipliers, the concept of value added, fiat money, Engel’s law and technical progress, to name but a few of the macrofoundations of microeconomics. A good viewpoint to take bearings anew lies in comparing the post-Great Depression institutions with those emerging from Thatcher and Reagan’s economic policies: deregulation, exogenous vs. endoge- nous money, shadow banking vs. Volcker’s Rule. Very simply, the banks, whose lending determined deposits after Roosevelt, and were a public service became private enterprises whose deposits determine lending. These underlay the great moderation preceding 2006, and the subsequent crash.

3,447 citations

Journal ArticleDOI
TL;DR: In this article, the authors explore the alternative hypothesis that trust and contract enforcement are complements and find that both increased contract enforcement and high trusting preferences lead to enhanced rates of contract formation and larger investments.
Abstract: Social preferences and third-party enforcement of formal contracts are two mechanisms that facilitate performance of an agreement. The standard argument is that formal, enforceable contracts substitute when the social preferences of trust and trustworthiness are lacking. We explore the alternative hypothesis that trust and contract enforcement are complements. We measure social preferences from both a Trust Game and a social values survey, using them as explanatory variables in a Contract Game. We find that both increased contract enforcement and high trusting preferences lead to enhanced rates of contract formation and larger investments. There is an important interaction effect, where trusting individuals enter into agreements at a greater rate and make larger investments when enforcement is greater. Thus, contracts and trust complement one another.

26 citations

Book ChapterDOI
01 Jan 2017
TL;DR: In this paper, the authors provide an estimate of rural-urban and urban-rural commuting at the national and sub-national levels using the nationally representative survey on employment and unemployment.
Abstract: This chapter contributes to the discussion on rural-urban interaction by focusing on daily commuting across rural and urban areas. Using the nationally representative survey on employment and unemployment, we provide an estimate of rural-urban and urban–rural commuting at the national and sub-national levels. We also highlight the phenomenon of workers who are tied to non-fixed places; they are also known as footloose workers. To complement the findings from the national survey, we provide insights from a small primary survey conducted in West Bengal, to support the understanding of the distance travelled by commuters, the modes of transport used and the job search process for daily commuters (especially workers attached to non-fixed places).

8 citations

Journal ArticleDOI
TL;DR: The coal mafia in Dhanbad, India as discussed by the authors showed that power often derives from socially hierarchical relationships involving debt and/or caste, and that state policies that are thoughtlessly implemented may solidify existing hierarchies.
Abstract: An investigation of the source of power of mafia†type organizations may reveal how other non†state actors can operate as if they are independent of the state. This study of the coal mafia in Dhanbad, India shows that power often derives from socially hierarchical relationships involving debt and/or caste. It also demonstrates how state policies that are thoughtlessly implemented may solidify existing hierarchies. By analogy, modern corporations gain some of their power by behaving as if they were semi†sovereign institutions that draw their strength informally from social networks and other extralegal relationships. The mafia in the Dhanbad coalfields emerged through a series of institutional changes. Labor shortages were initially resolved by labor intermediaries, who eventually controlled the labor through linkages associated with debt, caste, and social obligations. These intermediaries eventually assumed official positions in labor unions, which gave them a platform for electoral politics. When the coal industry was nationalized, the union leaders further solidified their position in the nationalized corporation. In this way, private labor intermediaries became local political leaders who controlled the state apparatus to some extent. Corporations follow similar patterns. Both mafias and corporations exploit weak governments, collude with them, and often operate with a high degree of independence. Like mafias, corporations often derive their power from socially embedded networks that they craft in local communities and populations. Because the roots of their influence are embedded in social networks, simple legal and regulatory changes are often insufficient to limit their power. Transnational corporations engaged in extraction of natural resources share with mafias the ability to leverage monopoly power in one domain into control of other domains. As a result, this case study of the coal mafia in India offers a unique entry point to understand corporate sovereignty.

7 citations

Journal ArticleDOI
TL;DR: In this paper, the authors investigated and assessed the validity and applicability of the division of institutions into formal and informal from the perspective of the analysis of social and economic phenomena, and they proved that the division is not only at least equally precise as other classifications, but it is also consistent and logical.
Abstract: Motivation: Definitions and classifications constitute the most important elements of each theory. The division of institutions into formal and informal is commonly applied within new institutional economics. In his papers devoted to institution measurement S. Voigt developed the division of institutions into internal and external, argued its functionality and, to a certain extent, its superiority. Aim: The aim of this paper is to investigate and assess the validity and applicability of the division of institutions into formal and informal from the perspective of the analysis of social and economic phenomena. Results: Based on literature, as well as drawing on the origins of the institution classification and referenced examples, it was proved that the division into formal and informal institutions is not only at least equally precise as other classifications, but it is also consistent and logical, which determines its high usefulness in scientific research.

3 citations


Cites background from "Impediments to contract enforcement..."

  • ...However, over 90% of them did not undertake any action (Naraparaju, 2016, pp. 651–676)....

    [...]

References
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Book
Elinor Ostrom1
01 Jan 1990
TL;DR: In this paper, an institutional approach to the study of self-organization and self-governance in CPR situations is presented, along with a framework for analysis of selforganizing and selfgoverning CPRs.
Abstract: Preface 1. Reflections on the commons 2. An institutional approach to the study of self-organization and self-governance in CPR situations 3. Analyzing long-enduring, self-organized and self-governed CPRs 4. Analyzing institutional change 5. Analyzing institutional failures and fragilities 6. A framework for analysis of self-organizing and self-governing CPRs Notes References Index.

16,852 citations

Journal ArticleDOI
TL;DR: The Economic Institutions of Capitalism as mentioned in this paper is a seminal work in the field of economic institutions of capitalism. Journal of Economic Issues: Vol. 21, No. 1, pp. 528-530.
Abstract: (1987). The Economic Institutions of Capitalism. Journal of Economic Issues: Vol. 21, No. 1, pp. 528-530.

16,767 citations

Journal ArticleDOI

10,424 citations


"Impediments to contract enforcement..." refers background in this paper

  • ...Given this, small, stable, and cohesive groups are found to be better in enforcing multilateral punishments because they reduce such collective-action dilemmas better (Ostrom, 1990)....

    [...]

Book ChapterDOI
TL;DR: In this article, the authors show that the information structure of employer-employee relationships, in particular the inability of employers to costlessly observe workers' on-the-job effort, can explain involuntary unemployment as an equilibrium phenomenon.
Abstract: Involuntary unemployment appears to be a persistent feature of many modem labor markets. The presence of such unemployment raises the question of why wages do not fall to clear labor markets. In this paper we show how the information structure of employer-employee relationships, in particular the inability of employers to costlessly observe workers' on-the-job effort, can explain involuntary unemployment' as an equilibrium phenomenon. Indeed, we show that imperfect monitoring necessitates unemployment in equilibrium. The intuition behind our result is simple. Under the conventional competitive paradigm, in which all workers receive the market wage and there is no unemployment, the worst that can happen to a worker who shirks on the job is that he is fired. Since he can immediately be rehired, however, he pays no penalty for his misdemeanor. With imperfect monitoring and full employment, therefore, workers will choose to shirk. To induce its workers not to shirk, the firm attempts to pay more than the "going wage"; then, if a worker is caught shirking and is fired, he will pay a penalty. If it pays one firm to raise its wage, however, it will pay all firms to raise their wages. When they all raise their wages, the incentive not to shirk again disappears. But as all firms raise their wages, their demand for labor decreases, and unemployment results. With unemployment, even if all firms pay the same wages, a worker has an incentive not to shirk. For, if he is fired, an individual will not immediately obtain another job. The equilibrium unemployment rate must be sufficiently large that it pays workers to work rather than to take the risk of being caught shirking. The idea that the threat of firing a worker is a method of discipline is not novel. Guillermo Calvo (1981) studied a static model which involves equilibrium unemployment.2 No previous studies have treated general market equilibrium with dynamics, however, or studied the welfare properties of such unemployment equilibria. One key contribution of this paper is that the punishment associated with being fired is endogenous, as it depends on the equilibrium rate of unemployment. Our analysis thus goes beyond studies of information and incentives within organizations (such as Armen Alchian and Harold Demsetz, 1972, and the more recent and growing literature on worker-firm relations as a principal-agent problem) to inquire about the equilibrium conditions in markets with these informational features. The paper closest in spirit to ours is Steven Salop (1979) in which firms reduce turnover costs when they raise wages; here the savings from higher wages are on monitoring costs (or, at the same level of monitoring, from increased output due to increased effort). As in the Salop paper, the unemployment in this paper is definitely involuntary, and not of the standard search theory type (Peter Diamond, 1981, for example). Workers have perfect information about all job opportunities in our model, and unemployed workers strictly prefer to work at wages less than the prevailing market wage (rather than to remain unemployed); there are no vacancies. *Woodrow Wilson School of Public and International Affairs, and Department of Economics, respectively, Princeton University, Princeton, NJ 08540. We thank Peter Diamond, Gene Grossman, Ed Lazear, Steve Salop, and Mike Veall for helpful comments. Financial support from the National Science Foundation is appreciated. 'By involuntary unemployment we mean a situation where an unemployed worker is willing to work for less than the wage received by an equally skilled employed worker, yet no job offers are forthcoming. 2In his 1979 paper, Calvo surveyed a variety of models of unemployment, including his hierarchical firm model (also with Stanislaw Wellisz, 1979). There are a number of important differences between that work and this paper, including the specification of the monitoring technology.

4,817 citations


"Impediments to contract enforcement..." refers background in this paper

  • ...In this sense, unemployment acts as a ‘disciplining device’ to induce worker effort (Shapiro and Stiglitz, 1984)....

    [...]

Book
01 Jan 1994
TL;DR: Applications of Local Polynomial Modeling in Nonlinear Time Series and Automatic Determination of Model Complexity and Framework for Local polynomial regression.
Abstract: Data-analytic approaches to regression problems, arising from many scientific disciplines are described in this book. The aim of these nonparametric methods is to relax assumptions on the form of a regression function and to let data search for a suitable function that describes the data well. The use of these nonparametric functions with parametric techniques can yield very powerful data analysis tools. Local polynomial modeling and its applications provides an up-to-date picture on state-of-the-art nonparametric regression techniques. The emphasis of the book is on methodologies rather than on theory, with a particular focus on applications of nonparametric techniques to various statistical problems. High-dimensional data-analytic tools are presented, and the book includes a variety of examples. This will be a valuable reference for research and applied statisticians, and will serve as a textbook for graduate students and others interested in nonparametric regression.

3,885 citations