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

Published online by Cambridge University Press:  04 November 2015

KARTHIKEYA NARAPARAJU
KARTHIKEYA NARAPARAJU*
Affiliation:
Economics Area, Indian Institute of Management Indore, Indore, India
*
*Email: karthikeyan@iimidr.ac.in
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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.

Type
Research Article
Information
Journal of Institutional Economics , Volume 12 , Issue 3 , September 2016 , pp. 651 - 676
Copyright
Copyright © Millennium Economics Ltd 2015 

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