Contract Enforcement in the English East India Company

Long-distance trade depends crucially on the enforcement of long-distance contracts, those in which principals are significantly removed from agents. The problem of contract enforcement in the English East India Company reflected a multi-task principal-agent problem in which servants traded publicly for the company and at the same time conducted their own private trade. Private trade, sustained by the private use of company resources, and dismissals were the mechanisms that made East India contracts work. Mechanisms that served little purpose were salaries and pre-employment bonds.