March 2020

Rural handwoven cloth from Laos came on to the market after the country’s economic liberalization in 1986. Though relational contracting is a major type of transaction in the cloth market, spot transactions and the workshop system also play a significant role. Relational contracting in the Lao cloth market has three distinct types: putting‐out, yarn‐on‐credit, and advacne‐order contracts. This paper examines why relational contracting is prevalent and what explains contract choice, especially choice regarding the three types of relational contracting. The paper focuses on the inherent agency problems in each type of relational contracting and the extent of these problems, which vary in two different situations: economic turbulence and stable circumstances. Additionally, the paper challenges historian and economic theses on the emergence of the workshop system. The discussion is based on results obtained from data collected via a unique interview survey with weaving‐sector actors from 1995 to 2015.Rural handwoven cloth from Laos came on to the market after the country’s economic liberalization in 1986. Though relational contracting is a major type of transaction in the cloth market, spot transactions and the workshop system also play a significant role. Relational contracting in the Lao cloth market has three distinct types: putting‐out, yarn‐on‐credit, and advacne‐order contracts. This paper examines why relational contracting is prevalent and what explains contract choice, especially choice regarding the three types of relational contracting. The paper focuses on the inherent agency problems in each type of relational contracting and the extent of these problems, which vary in two different situations: economic turbulence and stable circumstances. Additionally, the paper challenges historian and economic theses on the emergence of the workshop system. The discussion is based on results obtained from data collected via a unique interview survey with weaving‐sector actors from 1995 to 2015.Rural handwoven cloth from Laos came on to the market after the country’s economic liberalization in 1986. Though relational contracting is a major type of transaction in the cloth market, spot transactions and the workshop system also play a significant role. Relational contracting in the Lao cloth market has three distinct types: putting‐out, yarn‐on‐credit, and advacne‐order contracts. This paper examines why relational contracting is prevalent and what explains contract choice, especially choice regarding the three types of relational contracting. The paper focuses on the inherent agency problems in each type of relational contracting and the extent of these problems, which vary in two different situations: economic turbulence and stable circumstances. Additionally, the paper challenges historian and economic theses on the emergence of the workshop system. The discussion is based on results obtained from data collected via a unique interview survey with weaving‐sector actors from 1995 to 2015.Rural handwoven cloth from Laos came on to the market after the country’s economic liberalization in 1986. Though relational contracting is a major type of transaction in the cloth market, spot transactions and the workshop system also play a significant role. Relational contracting in the Lao cloth market has three distinct types: putting‐out, yarn‐on‐credit, and advacne‐order contracts. This paper examines why relational contracting is prevalent and what explains contract choice, especially choice regarding the three types of relational contracting. The paper focuses on the inherent agency problems in each type of relational contracting and the extent of these problems, which vary in two different situations: economic turbulence and stable circumstances. Additionally, the paper challenges historian and economic theses on the emergence of the workshop system. The discussion is based on results obtained from data collected via a unique interview survey with weaving‐sector actors from 1995 to 2015.