The theory of interlinked contract: where do we stand?Interlinked contract prevails in less development countries (LDCs). Understanding the rationale, structure and dynamics of such contracts is crucial for a better understanding of economic development and institutional changes and the making of public policies. In this regard, this paper is an attempt to provide a theoretical review of the existing literature. The paper first sets the rural stage for interlinked contracts and then reviews the theoretical rationale and pros and cons of such contractual interlinkage. The paper ends up with some brief implications for China’s transition and development.