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Interlinked Contracts: An Empirical Study
Author(s) -
Koo Huiwen,
Huang Chenying,
Kan Kamhon
Publication year - 2012
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/j.1468-0335.2011.00894.x
Subject(s) - order (exchange) , cash , sugar cane , cash crop , economics , business , empirical research , sugar , finance , agricultural science , microeconomics , production (economics) , mathematics , statistics , environmental science , biochemistry , chemistry
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.