INTERLINKED TRANSACTIONS IN RURAL MARKETS: AN EMPIRICAL STUDY OF ANDHRA PRADESH, BIHAR AND PUNJAB

AuthorT. N. Srinivasan,Clive Bell
DOIhttp://doi.org/10.1111/j.1468-0084.1989.mp51001005.x
Publication Date01 Feb 1989
OXFORD BULLETIN OF ECONOMICS AND STATISTICS, 51, 1 (1989)
0305-9049 $3.00
INTERLINKED TRANSACTIONS IN RURAL
MARKETS: AN EMPIRICAL STUDY OF
ANDHRA PRADESH, BIHAR AND PUNJAB
Clive Bell and T. N. Srinivasan
An interlinked transaction is one in which the parties trade in at least two
markets on the condition that the terms of all trades between them are jointly
determined Interlinking has been the object of much theoretical work on
rural economies in recent years (Bhaduri, 1973; Bardhan, 1980; Braverman
and Srinivasan, 1981; Braverman and Stiglitz, 1982; Mitra, 1983). The
canonical example in this literature deals with a landlord and a tenant when
the tenant is contractually bound to borrow exclusively from the landlord.
Other arrangements have also been recognized, such as the labourer who
borrows from the cultivator who employs him and the cultivator who is
financed by the traders to whom he will sell his crops; but they have received
little attention. In contrast to this outpouring of theory, there have been very
few detailed empirical investigations of the nature and extent of interlinking,
notable exceptions being the work of Bardhan and Rudra (1978, 1980, 1981)
on Eastern India and Bliss and Stern (1982) and Drèze and Mukherjee
(1987) on a single village in western Uttar Pradesh. It is the purpose of this
paper further to redress this imbalance, and in so doing to nudge theoretical
inquiry in directions that are empirically important.
Our method of investigation differs from that of Bardhan and Rudra in two
important respects. First, they drew their sample of almost 300 villages
randomly, with probability proportional to size of population, whereas we
selected only 34 villages purposively, albeit based on rather noisy infor-
mation. When it came to respondents, however, Bardhan and Rudra chose
purposively. Just two tenants, two casual agricultural labourers and two
permanent farm servants, each selected for his knowledge and cooperative-
ness, were questioned at length on the prevailing arrangements and
conditions in their village. In our study, 40 households were selected ran-
domly from each village and then followed continuously for an entire crop
season. Thus, the two studies have somewhat complementary strengths and
weaknesses.
Secondly, the States studied span much of India's great agro-economic
diversity. Bihar, in Easter India, is 'backward' by virtually any measure -
productivity, commercialization, incomes, literacy and mortality - with an
oppressively traditional agrarian structure to match. At the other extreme,
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