Honesty, Diligence, and Skill: Risk Sharing and Specialization in the Kiryu Silk Weaving Cluster, Japan

Industrial clusters and factory industries co-develop during industrialization and the relational contracts between manufacturers and subcontractors are the organizational basis of clusters. We predict that relational transactions between manufacturers and subcontractors and cooperative action between manufacturers within a cluster help motivate riskaverse premium subcontractors by reducing risk, not only potentially punish cheaters. We study Kiryu, a kimono weaving cluster that expanded from the late 19th century along with new synthetic dyeing techniques. We show that premium subcontracting weavers were allowed long-term relational contracts and specialization, which induced already honest weavers to be diligent and to acquire skills.