technology and transaction cost economics a reply abstract i argue here as i have previously that technology is neither fully determinative of nor irrelevant to economic organization transaction cost economizing occupies a prominent position in any effort to assess the efficacy of alternative forms of economic organization

exclusive contracts and protection of investments we consider the effect of a renegotiable exclusive contract restricting a buyer to purchase from only one seller on the levels of noncontractible investments undertaken in their relationship contrary to some informal claims in the literature we find that exclusivity has no effect when all investments are fully specific to the relationship i e are purely internal exclusivity does matter when investments affect the value of the buyer s trade with other sellers i e have external effects we examine the effects of exclusivity on investments and aggregate welfare and the private incentives of the buyer seller coalition to use it

cost sharing arrangements under sharecropping moral hazard incentive flexibility and risk this paper explains the rationale and describes the characteristics of cost sharing arrangements in rural developing economies focusing on the risk and incentive properties of alternative cost contracts and on their flexibility their ability to adapt to environmental changes it is shown that where labor inputs are difficult to monitor the rule that cost shares and output shares be equalized will not hold and is not constrained pareto efficient and that cost sharing contracts have a decided advantage over contracts which specify the level of inputs whenever there are asymmetries of information regarding production technology between the landlord and the tenant

the economics of poverty traps and persistent poverty an asset based approach abstract longitudinal data on household living standards open the way to a deeper analysis of the nature and extent of poverty while a number of studies have exploited this type of data to distinguish transitory from more chronic forms of income or expenditure poverty this paper develops an asset based approach to poverty analysis that makes it possible to distinguish deep rooted persistent structural poverty from poverty that passes naturally with time due to systemic growth processes drawing on the economic theory of poverty traps and bifurcated accumulation strategies this paper briefly discusses some feasible estimation strategies for empirically identifying poverty traps and long term persistent structural poverty as well as relevant extensions of the popular foster greer thorbecke class of poverty measures the paper closes with reflections on how asset based poverty can be used to underwrite the design of persistent poverty reduction strategies

common property equality and development the appeal of common property ideas may be traced in large measure to the fact that they seem to embody widely held values of equality on the other hand empirical examination of common property institutions reveals that they can coexist with significant inequality in this paper the relationship between common property and equality is examined it is argued that the role of common property can only be understood in the context of the associated private property institutions common property in agriculture is interpreted as part of a system based on small scale peasant proprietorship of arable land common property institutions provide a method of capturing scale economies and thereby increasing the efficiency of small scale proprietorship in competition with large scale production based on wage labor

quality variations and the choice between foreign and indigenous goods or technology abstract in this paper different production techniques are distinguished by both their resource requirements and the quality of their outputs the optimal choice of production methods depends upon demand conditions as well as the economy s capital labor endowment and the technical characteristics of the alternatives when product quality improvement is possible through the adoption of a foreign advanced capital intensive technique at most two techniques should be employed and the more closely matched are the capital labor requirement of the advanced method and the aggregate capital labor ratio the greater the extent of adoption the presence of a competing quality improving activity using the indigenous technology reduces the range of aggregate capital labor endowments for which the advanced technique should be employed we consider quality inspection of units which reduces the amount of tradable output produced by given inputs as its market value increases economies of scale in that the per unit cost of a given quality improvement falls with increasing sectoral output are included

agency costs and the agricultural firm in the last decade there has been a major rekindling of interest among economists in the form of institutions used to organize resources for production and distribution jensen 1983 distinguishes two agency literatures that share the comparative institutions perspective introduced by coase 1937 1960 principal agency theory e g stiglitz 1975 harris and raviv 1978 shavell 1979 h61mstrom 1979 lewis 1980 provides a mathematical formulation of contractual choice and has been primarily directed to the trade off between risksharing and incentives against labor shirking positive agency theory pioneered by coase 1937 resurrected by alchian and demsetz 1972 and currently represented for example by fama and jensen 1983a is nonmathematical and places relatively more emphasis on explaining actual patterns that characterize industrial organization in agriculture the theory of organizational form has centered largely around tenure choice the theory of tenure choice has an illustrious history in the economics literature e g smith 1922 marshall 1920 heady 1955 day 1967 cheung 1969 rao 1971 stiglitz 1974 reid 1976 newbery and stiglitz 1979 binswanger and rosenzweig 1984 in recent years alternative tenancy arrangements are commonly viewed as types of employment contracts e g newbery and stiglitz 1979 braverman and stiglitz 1975 harris and raviv 1978 shavell 1979 hw1mstrom 1979 lewis 1980 in an innovative departure from the view of tenancy as an employment contract eswaran and kotwal 1985 have modelled share tenancy as a partnership between a landowner who specializes in decision making and a tenant who specializes in labor supervision more generally questions of tenure choice employment contracts manag ment systems and farm size can all be usefully viewed as aspects of agricultural organization the purpose of the present paper i to elucidate this view and to investigate tenure choice as a part of the general study of the nature and causes of the agricultural firm the paper is organized to highlight the inductive approach employed section 2 classiies agricultural firms according to the degree of specialization and who gets the residual payment the classification is combined with previously documented patterns of tenure choice in order to posit a preliminary hypothesi about the relationship between the econo ic environment and the nature of the agricultural firm section 3 uses a principalagency framework to construct a theory of the hypothesized relationship between the degree of separation between labor and management nd l nd quality section 4 provides an illustrative statistical verification of the hypothesis based on a sample of philippine sugarcane f rms section 5 summarizes the paper and discusses two implications of the transaction cost approach for institutional design

are there gender differences in demand for index based livestock insurance abstractrisk management plays a role in avoiding and escaping chronic poverty throughout the world particularly for women who are disproportionately negatively affected by shocks using three years of household survey data administrative records and qualitative interviews this paper examines the relationship between gender and demand for index based livestock insurance ibli among pastoralists in southern ethiopia ibli appears to be equitably accessed by men and women alike and we find limited evidence of gender differentiated demand for ibli we also find only modest differences associated with age and share of income from livestock

too certain to invest public safety nets and insurance markets in ethiopia researchers efforts to introduce index insurance in developing countries have met with little demand despite its great potential to help farmers mitigate economic risk i argue that researchers have overlooked institutional context s critical role in the formation of private markets when designing insurance contracts using micro level evidence from ethiopia i show that recipients of a preexisting effective large scale public safety net fail to take up a new highly subsidized private insurance offer government safety net programs can decrease demand for private index insurance forming an additional barrier to index insurance take up a direct implication of this research is that policymakers should design private and public insurance products that account for or even complement each other

naive diversification strategies in defined contribution saving plans there is a worldwide trend toward defined contribution saving plans and growing interest in privatized social security plans in both environments individuals are given some responsibility to make their own asset allocation decisions raising concerns about how well they do at this task this paper investigates one aspect of the task namely diversification it is shown that some investors follow the 1 n strategy they divide their contributions evenly across the funds offered in the plan consistent with this naive notion of diversification it is found that the proportion invested in stocks depends strongly on the proportion of stock funds in the plan

scattered landholdings in common property systems abstract concepts of common property have received increasing attention in recent years this has been associated with a re evaluation of historical common property institutions such as the medieval commons one of the major problems raised in the process has been the need to explain the phenomenon of scattering of a farmer s landholdings into a number of separate strips an explanation is sought in the need for a smoothly operating collective decision process scattering is seen as a means by which intra group conflict can be minimized other aspects of the problem such as externalities are also examined

risk management in the cooperative contract agricultural cooperatives have long played an important role in helping their members manage risk yet the typical cooperative co op does a much better job of helping its members manage some sorts of risk than it does others in particular co ops are good at helping members manage marketing risk or idiosyncratic variation in prices observed within the course of a single season however agricultural cooperatives seem not to be particularly good at helping their members to manage production risk which involves variation in yield over the course of several years this paper argues that by taking advantage of the multi year nature of most members relationship with the cooperative the cooperative can also provide a useful though limited form of insurance against crop shortfalls agricultural producers face various sorts of risk some of these are difficult to manage using standard institutions agricultural cooperatives can play an important role in helping their members to manage these sources of risk for example marketing co ops traditionally help to reduce price risk by pooling sales across time and space and could reduce production risk by making some payments to members on the basis of predetermined shares rather than on actual delivery or patronage however just because a cooperative can help its members manage risk does not mean that membership in a cooperative will serve as a useful means for dealing with risk the details of a cooperative s by laws management of equity mechanisms governing the transfer of delivery rights methods of capitalization pooling rules and expansion options can all have a big impact on the usefulness of the cooperative structure as a risk management tool for users here we provide an enumeration of some different sorts of shocks which may be important to agricultural producers and then describe the manner in which a typical cooperative market pooling mechanism

the nature of the agricultural firm abstract models explaining the choice between rent wage and share contracts in agriculture abstract from the large variations within the classes of rent share and owner managed forms of organization regarding the extent to which a specific form accommodates specialization between labor and management as a result modern explanations of agricultural organizations are misleadingly dependent on risk aversion or the assumption that landowners have an absolute advantage in production decisions viewing the agricultural firm as a constitution instead of as a nexus of contracts facilitates an agency explanation of alternative organizational forms and their amenability to specialization

contractual structure in agriculture abstract this paper develops a generalized double sided moral hazard model of contract choice in agricultural production with mutual monitoring of each other by the landlord and the tiller who generally have different levels of farming efficiency and are risk averse using this model we formally prove that the optimal contract maximizes the output net of the risk bearing and agency costs of both the parties and carry out a simulation exercise which helps explain many of the tenancy related issues the difference in the farming efficiency of the two sides often ignored in previous analysis turns out to be the principal determinant of the contract offered to a tiller

evidence of demand for index insurance experimental games and commercial transactions in ethiopia abstractwe present results of experimental games with smallholder farmers in tigray ethiopia in 2010 in which participants in the games allocated money across risk management options one of the options was index insurance that was the same as commercial products sold locally participants exhibited clear preferences for insurance contracts with higher frequency payouts and for insurance over other risk management options including high interest savings the preference for higher frequency payouts is mirrored in commercial sales of the product with commercial purchasers paying substantially higher premiums than the minimal low frequency option available this combined evidence challenges claims that the very poor universally choose minimal index insurance coverage and supports concerns that demand may outpace supply of responsible insurance products

insurance credit and technology adoption field experimental evidence from malawi this brief summarizes the insurance credit and technology adoption field experimental evidence from malawi the farmers were offered loans for the november 2006 planting season does production risk suppress the demand for credit the author implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology the study sample was composed of roughly 800 maize and groundnut farmers in malawi where by far the dominant source of production risk is the level of rainfall the author randomly selected half of the farmers to be offered credit to purchase high yielding hybrid maize and groundnut seeds for planting in the november 2006 crop season the other half of farmers were offered a similar credit package but were also required to purchase at actuarially fair rates a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall surprisingly take up was lower by 13 percentage points among farmers offered insurance with the loan take up was 33 0 percent for farmers who were offered the uninsured loan there is suggestive evidence that reduced take up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract insured loan take up was positively correlated with farmer education income and wealth which may proxy for the individual s default costs by contrast take up of the uninsured loan was uncorrelated with these farmer characteristics

utility risk and demand for incomplete insurance lab experiments with guatemalan cooperatives we play a series of incentivized laboratory games with risk exposed cooperative based coffee farmers in guatemala to understand the demand for index based rainfall insurance we show that insurance demand goes up as increasingly severe risk makes insurance payouts more partial payouts are smaller than losses but demand is ad versely effected by more complex risk structures in which payouts are probabilistic it is possible that a shock occurs with no payout we use numerical techniques to esti mate a flexible utility function for each player and consequently can put exact dollar values on the magnitude of the behavioral response triggered by probabilistic insur ance exploiting the group structure of the cooperative we investigate the possibility of using group loss adjustment to smooth idiosyncratic risk our results suggest that consumers value probabilistic insurance using a prospect style utility function that is concave both in probabilities and in income and that group insurance mechanisms are unlikely to solve the issues of low demand that have bedeviled index insurance markets

poverty risk aversion and path dependence in low income countries experimental evidence from ethiopia in most low income countries rural households depend on mixed rain fed agriculture livestock production which is very risky due to numerous market failures there are few ways to shift risks to third parties the literature has focused on what determines the responses of households in such environments of special concern are path dependencies in which households experiencing failure are prone to further failure and potential poverty traps this paper estimates levels and determinants of risk aversion in the highlands of ethiopia we find high risk aversion and evidence that constraints have important impacts on risk averting behavior with perhaps significant implications for long term poverty the results also suggest the possibility of path dependence and offer insights into links between risk aversion and poverty traps copyright 2009 oxford university press

group based funeral insurance in ethiopia and tanzania a funeral is a costly occasion this paper studies indigenous insurance institutions developed to cope with the high costs of funerals based on evidence from rural areas in tanzania and ethiopia these institutions are based on well defined rules and regulations often offering premium based insurance for funeral expenses increasingly they are also offering other forms of insurance and credit to cope with hardship the paper argues that the characteristics and inclusiveness of these institutions make them well placed as models to broaden insurance provision and other developmental activities in these communities the history of these institutions is characterised by a resistance to attempts of political capture and helps to understand their apparent resistance to engage more broadly with ngos and government agencies as a result any attempt to expand their activities will have to be done cautiously

vertical integration in the presence of upstream competition we analyse vertical integration when there is upstream competition and compare outcomes to the case where upstream assets are owned by a single agent i e upstream monopoly in so doing we make two contributions to the modelling of strategic vertical integration first we base industry structure namely the ownership of assets firmly within the property rights approach to firm boundaries second we model the potential multilateral negotiations using a fully specified non cooperative bargaining model designed to easily compare outcomes achieved under upstream competition and monopoly given this we demonstrate that vertical integration can alter the joint payoffs of integrating parties in ex post bargaining however this bargaining effect is stronger for firms integrating under upstream competition than upstream monopoly we also consider the potential for integration to internalise competitive externalities in manner that cannot be achieved under non integration we demonstrate that ex post monopolization is more likely to occur when there is an upstream monopoly than when there is upstream competition our general conclusion is that the simple intuition that the presence of upstream competition can mitigate and reduce the incentives for socially undesirable vertical integration is misplaced and depending upon the strength of downstream competition i e product differentiation the opposite could easily be the case journal of economic literature classification number l42

common property in agricultural production the determination of the property rights structure in agriculture and particularly the role of common property may be viewed as a problem in industrial organization the analysis will focus on the determination of the efficient property rights structure in a multi output technology characterized by economies of scale and scope but also including outputs for which technology is essentially linear given an appropriate analysis of transactions costs common property may be shown to be an efficient alternative to systems based purely on small scale or large scale private property

choosing rules to govern the commons a model with evidence from mexico abstract i develop a model to assess distributive rules observed in field data on 48 mexican farmer managed irrigation systems households decide whether to contribute maintenance effort the aggregate amount of which affects the level of output distributive rules with congruence between the sharing of collective costs and benefits elicit the highest level of effort empirically however incongruent rules dominate the surveyed systems i argue that transaction costs offset some efficiency benefits of congruent rules i estimate a model of rule choice inequality and the age of the water users association strongly increase the likelihood that a system chooses proportional water allocation

the demand for microinsurance a literature review summary microinsurance has recently received much attention as a promising tool to protect poor individuals from important shocks yet voluntary demand from people has been low shedding doubt on the viability of microinsurance as a useful risk management tool to better understand this puzzle this paper reviews both the theoretical and empirical literature on the demand for insurance while people s lack of understanding of insurance does seem to limit the demand for it several more fundamental factors such as price quality limited trust in the insurer and liquidity constraints also seem to have an important role in explaining the puzzle

is farming a constant cost industry measurement of cost size relationships for farming has long been an important area of research in agricultural economics much of this research has had a farm management and production economics orientation and firm industry interdependencies have often been ignored research results stemming from such an orientation should be interpreted with care when used for policy purposes pecuniary externalities may be of greater importance than indicated by research to this time a suggestion is made for treating induced technical change as comparable to a pecuniary externality questions are raised on both theoretical and empirical grounds whether farming in the united states should be considered a constant cost industry for policy purposes

exclusivity competition and the irrelevance of internal investment this paper considers the effect of exclusive contracts on investment decisions in a market with two upstream and two downstream firms segal and whinston s 2000 irrelevance result is generalized and it is shown that exclusive contracts have no effect on the equilibrium level of internal investment for the contracted parties when competition exists in both the upstream and downstream markets furthermore by considering a more competitive environment we are able to demonstrate that strongly internal investment by rival upstreamdownstream bargaining pairs is similarly unaffected by the presence of exclusive contracts

exclusive contracts foster relationship specific investment exclusive contracts prohibit one or both parties from trading with anyone else contrary to earlier findings we show that investments that are specific to the contracting parties may be encouraged by exclusivity results depend on the nature of investments and the bargaining solution the major part of the analysis shows that exclusivity deals designed to assure the supply of essential inputs promote investment infinite penalties for breach even if ex post renegotiable may result in excessive investment in which case a positive but finite damage payment yields the first best outcome

tying odysseus to the mast evidence from a commitment savings product in the philippines we designed a commitment savings product for a philippine bank and implemented it using a randomized control methodology the savings product was intended for individuals who want to commit now to restrict access to their savings and who were sophisticated enough to engage in such a mechanism we conducted a baseline survey on 1777 existing or former clients of a bank one month later we offered the commitment product to a randomly chosen subset of 710 clients 202 28 4 percent accepted the offer and opened the account in the baseline survey we asked hypothetical time discounting questions women who exhibited a lower discount rate for future relative to current trade offs and hence potentially have a preference for commitment were indeed significantly more likely to open the commitment savings account after twelve months average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group we conclude that the savings response represents a lasting change in savings and not merely a short term response to a new product

how might climate change influence farmers demand for index based insurance the low observed uptake of non subsidised index based insurance policies in developing countries has been puzzling researchers for about a decade this paper analyses the role of drought frequency in farmers demand for index based insurance in developing countries while it is typically assumed that an increase in exposure to risk would result in higher demand for index insurance this paper finds the opposite an increase in drought frequency may result in lower demand for index insurance under fairly standard conditions in an expected utility model we show that the demand for insurance is an inverted u function of drought frequency we further show that downside basis risk decreases insurance demand under frequent drought conditions it implies that insurance against similar but more frequent events cannot meet large demand from farmers to check the empirical relevance of these effects we conduct an insurance field experiment in burkina faso with 205 farmers we analyse insurance demand for different drought frequencies different levels of basis risks and different loading factors through incentivised lottery choices this analysis confirms that for higher drought frequencies insurance demand is lower insurance demand also decreases with basis risk and the loading factor

do rural banks matter evidence from the indian social banking experiment lack of access to finance is often cited as a key reason why poor people remain poor this paper uses data on the indian rural branch expansion program to provide empirial evidence on this issue between 1977 and 1990 the indian central bank mandated that a commercial bank can open a branch in a location with one or more bank branches only if it opens four in locations with no bank branches we show that between 1977 and 1990 this rule caused banks to open relatively more rural branches in indian states with lower initial financial development the reverse is true outside this period we exploit this fact to identify the impact of opening a rural bank on poverty and output our estimates suggest that the indian rural branch expansion program significantly lowered rural poverty and increased non agricultural output

is there too much hype about index based agricultural insurance abstract individual crop insurance has been largely abandoned in developing countries and replaced by insurance pilots based on weather indices these pilot schemes have encountered low demand research suggests that better off farmers may already be insured via income diversification their assets and social networks and may achieve profit maximising portfolios without formal insurance contracts they would be interested in such contracts only if they reliably reduced their exposure to risk at lower costs than their self insurance mechanisms conversely poor farmers are not able to self insure adequately have to trade off returns for reduced risk and could therefore benefit from a well designed insurance but they are cash credit constrained and therefore cannot advance the money before sowing time to buy insurance that pays out only after the harvest index insurance therefore cannot be scaled up even if a few farmers purchase it governments still will need to run relief programmes for the un