The shift from subsistence to commercial economies creates surplus, but often induces conflict over it. Under extractive institutions and weak contract enforcement, crony capitalism may emerge and limit the benefits of modernization. Casaburi, Kremer and Ramrattan (2019) examine the relationship between a large sugar cane contract farming company and small farmers in Western Kenya, in a setting with many features of crony capitalism. They document frequent violations of the company’s contractual obligations and propose a simple theory of how farmers’ collective action problems may make it harder to enforce contracts. The authors then test the direct effects of an ICT-based intervention that reduces farmers’ cost of complaining, potentially addressing company’s moral hazard and farmers’ free riding problems.
