The Diversity of Land Institutions in Europe - Working Paper

In previous reviews, we have already seen the importance of inheritance law and land titling on development outcomes. Swinnen, Van Herck and Vranken's paper  "The Diversity of Land Institutions in Europe" looks at land institutions related to farming in EU context and shows both the large diversity within a single market and how policy decisions can have large effects in relatively short periods of time.

Abstract:     

"The creation of optimal land institutions attracted renewed attention in the 1990s because of its central role in the transition process in former Communist countries in the former Soviet Union and Eastern Europe and more recently because of large-scale land investments in developing countries. This paper documents the existence of large variations in land institutions (markets and regulation) using current and historical data from Western and Eastern Europe. It then offers explanations for these differences and draws implications for the role and optimality of land institutions in development (with special reference to the current debate on large scale land acquisitions)"

 

It is interesting to see how much diversity there is among EU countries, both within the EU15 and former communist, specially in a setting where there is not only a common market but also a Common Agricultural Policy (CAP). These differences not only point at history but also to more recent policy decisions in land restitution (former communist), rental environment, and farmland regulatory framework. While the study does look at land institutions per se, it is a pity there has not been a deeper look at the impact of the CAP on those institutions, aside from a passing mention in the case of Greece (the requirement of rental agreements have led to an increase in formalization).

This also shows that there are many paths to a functional agricultural land market and that both institutional design and political/policy considerations loom large. Land reform is still in the agenda of many developing countries, although not as much in its traditional shape (social justice) and rather as economic (mostly export led) growth argument. The acceptance of multiple pathways with endogenous development within a common external framework reinforces the point that 'cookie cutter' policy proposals by external actors are a misrepresentation of the policy options at hand

 

Interesting to note that one of the largest countries both in farmland and agricultural production within the EU, Spain, is not part of the analysis. The authors do not give an explanation so we are left guessing. Selection bias? quality of data?

 

 

 

 

Temporary Protection and Technology Adoption: Evidence from the Napoleonic Blockade - Job Market Paper

Industrial policy is always a contentious argument in development economics between free-marketers and state intervention. Réka Juhász's Job Market Paper "TemporaryProtection and Technology Adoption: Evidence from the Napoleonic Blockade" brings historical evidence to that debate through an interesting natural experiment from the early 19th century.

Abstract

"This paper uses a natural experiment to assess whether temporary protection from trade with industrial leaders can foster development of infant industries in follower countries. Using a new dataset compiled from primary sources, I find that in the short-run regions (départements) in the French Empire which became better protected from trade with the British for exogenous reasons during the Napoleonic Wars (1803-15) increased capacity in a new technology, mechanised cotton spinning, to a larger extent than regions which remained more exposed to trade. Temporary protection had long term effects. In particular, by exploiting the fact that the post-war location of the cotton industry was determined to a large extent by the historical accident of the wars, I first show that the location of cotton spinning within France was persistent, and firms located in regions with higher post-war spinning capacity were more productive 30 years later. Second, I find that after the restoration of peace, exports of cotton goods from France increased substantially, consistent with evolving comparative advantage in cottons. Third, I show that as late as 1850, France and Belgium - both part of the French Empire prior to 1815 - had larger cotton spinning industries than other Continental European countries which were not protected from British trade during the wars; this suggests that adoption of the new technology was far from inevitable."

Interestingly, the paper studies the effects of an event and policy that was not designed for industrial purposes: the Napoleonic Wars and the Continental Blockade. While the Continental Blockade had the foreign policy purpose of undermining Britain's trade advantage/power and not necessarily a protectionist measure for French industry (in this case cotton). Probably the most interesting case may be that of Belgium and not that of France. During the Napoleonic Wars, Belgium was under French control (1794-1815) until it became part of the Netherlands. However, cotton industry grew more in Belgium than in the Netherlands in the post-Napoleonic period.. pointing out to the second issue: Technology Adoption

The results show there may be some role to be played for protectionist policies for infant industries not only to establish productive capacity but also the be able to adopt/adapt new technologies more successfully. On the other hand, the temporary protection was not sector-specific but across the board, leading to the interpretation that industrial policy may be more effective by focusing on the general environment rather than specific industries, allowing for an efficient internal reallocation of resources.

To note that the study focuses on a successful case and does not look at the industries that may have been wiped out after the lifting of the blockade, so we should be careful in making general economic welfare interpretations at country level.

Interesting Links

Interesting articles and links:

- Running surveys in warzones

- Does money buy Hearts and Minds? Mostly research in the Philippines but also elsewhere.

- Understanding the Civil Law, an interesting primer for people without legal background (and some interest in history)

Interesting links

Links of the week:

- Salaries and NGOs (no, money ain't all). Study on incentives for NGO workers in Uganda

- 10 thing political scientist know that you don't (in the USA) 

- Kony 2012 aftermath, Why did Invisible Children dissolve?

- Lobster fishing or lobster farming? 80% of Maine lobster diet is bait?

The Effect of HIV Infection Risk Beliefs on Risky Sexual Behaviors: Scared Straight or Scared to Death? - Job Market Paper

Much of the development work is about behavior change, the assumption that with extra resources and knowledge people (also known as beneficiaries) will do things better in the future. Nowadays there is an increasing shift towards the 'at-risk' label (although 'vulnerable' is still going strong) to justify targeting: youth at-risk, women at-risk, children at-risk. However, Kerwin's job market paper "The Effect of HIV Infection Risk Beliefs on Risky Sexual Behaviors: ScaredStraight or Scared to Death?" suggests that we may be wrongly identifying both target groups and responses.

Abstract

"Economists typically assume that risk compensation is uniformly self-protective - that people become more careful as the health risks of their actions increase. However, risk-seeking, or fatalistic, responses can also be rational: increased risks can lead people to take fewer precautions. I extend the typical model of risk compensation to show that fatalism is a rational response to sufficiently high risks if people do not have perfect control over all possible exposures, and if the condition in question is irreversible. This result holds even for people who do not understand how to add up probabilities. I test this model's implications by randomizing the provision of information on HIV transmission risks to people in Malawi, a country with a severe HIV epidemic where there is qualitative evidence of fatalistic responses to the virus.

Average risk responses are self-protective and statistically significant, but small in magnitude: the mean risk elasticity of sexual behavior is roughly -0.6. To test the model of rational fatalism,I develop a method of decomposing 2SLS estimates of the risk elasticity of sexual behavior by baseline risk beliefs. Consistent with the predictions of my theoretical framework, I find that this elasticity varies sharply by baseline risk beliefs: the risk elasticity varies from -2.3 for the lowest initial beliefs to 2.9 for the highest initial beliefs. 13.8% of the population has a positive elasticity, suggesting they are fatalistic."

While the study focuses on HIV, how we handle 'at risk' groups is conceptually similar across the sectors. In most cases, targets are identified according to socioeconomic status, employment, location, age and other indicators of potential risk. The advantage of this method is that is relatively easy to identify people with this criteria. The study adds yet another criteria: fatalism, an indicator extremely relevant and yet very difficult to measure (somehow some behaviors can be used as proxy). A fatalist view will not attempt to mitigate the risks but rather embrace them and assume the worst already, making traditional risk education infective (as it tends to highlight negatives as a preventive methodology).

We see a similar issue regarding suicide bombers, gang membership and other high risk behaviors, where the at-risk profile is wide enough to include thousands (if not millions) and yet the actual number of joining are well below. Maybe what we need is better psychological profiling in order to be more precise in both identifying beneficiaries and tailoring the message.

HT to Development Impact

Give Everybody a Voice! The Power of Voting in a Public Goods Experiment with Externalities - Working Paper

While, in general, I am not keen on social science results coming out of controlled lab experiments, Engel and Rockenbach's "Give Everybody a Voice! The Power of Voting in a Public Goods Experiment with Externalities" offer an interesting though with potential large implications (if proven by field testing) for development practitioners.

 
Abstract:  

"We study the effect of voting when insiders’ public goods provision may affect passive outsiders. Without voting insiders’ contributions do not differ, regardless of whether outsiders are positively or negatively affected or even unaffected. Voting on the recommended contribution level enhances contributions if outsiders are unaffected and internalizes the negative externality by lowering contributions when outsiders are negatively affected. Remarkably, voting does not increase contributions when it would be most desirable, i.e. with a positive externality. Here, participants vote for high contributions, yet compliance is poor. Unfavorable payoff comparisons to the outsiders that gain a windfall profit drive contributions down."

In many development interventions, specially with the popularity of Community Driven Development (CDD), communities are asked to chose priorities and, in some cases, also contribute to them. Those priorities usually reflect public goods (or rather public services that can have a public good component, like schools, medical posts, markets, community centers) that do have externalities on other communities (or even within the community). Unfortunately, in development we tend to treat externalities either as a risk (other communities/actors reacting negatively, spoilers) or as a multiplier-effect (bonus points because there is a positive spill-over beyond the community) but rarely as something integral to the design of the decision-making process and the community contribution (both at initial stage and on running costs).

The study shows that enforcement of decisions is key (nothing new there) but also that voting and the nature of the externality have an effect on contributions: If negative it lowers (acknowledgement of impact on others?), if positive it also lowers!! (why should we pay for those free riders?) and if neutral increases (it is all ours?).

In my view policy implications are multiple: 

1) we need to field test this hypothesis, 

2) we may need to tailor decision-making processes and corresponding contributions according to externalities (assuming we want to maximize community contribution). Of course this is easier said that done, specially in CDD settings where the prioritization outcome is not necessarily known beforehand (although the guessing can be quite narrow),

3) extend voting to all contributors. While this point is not looked into by the study, the fact that there might be contributor not participating in the decision-making (indirectly so, through the non-binding phase), we can assume that shifting them from semi-bystanders to decision-makers/contributors would increase the compliance (a point made in many studies in political science on broadening the voting franchise AND the tax base),

4) in stable systems, both and positive negative externalities are dealt by shifting the decision-making process to a higher level (district, region, nation) that can provide for a compensatory system (insurance, investments, balancing out positive and negative externalities). However, in many development settings a 'bump-up the ladder' is not an efficient option (and a whole different 'governance' debate). Clustering (identifying and including affected parties) for decision-making and contributions (in the case of positive externalities) would make the public good neutral (and raise contributions). For negative externalities it is much harder unless the potential damage has been pre-identified and a compensatory mechanism already established (i.e. another development project in the affected community, mitigation measures).

School Competition and Product Differentiation - Job Market Paper

School competition is widely presented as a model for improving educational outcomes. Ongoing debates on school vouchers, charter schools and the role of private education show an increased focus on the use of market forces in the education sector. Bau's "School Competition and Product Differentiation" takes a slightly different approach, instead of the 'traditional' comparison between public and private schools, she looks into the effect of competition within the private sector.

Abstract

"Policies that encourage school competition in hopes of improving school quality are increasingly popular in both rich and poor countries. In this paper, I establish that schools may respond to increased competition by catering to wealthier students, at the expense of poorer students. I develop a model of school competition in the presence of differential information.

If (1) the match between a school and a student affects learning, and (2) wealthier students' enrollment decisions are more responsive to their match to schools, then schools cater more to the needs of wealthy students. Therefore, the entry of an additional school can reduce the quality of the match for poorer students. I show that the key mechanism of the theoretical model - that wealthier student are more responsive to their predicted test score gains when choosing schools - is consistent with the data by estimating a structural model of school choice in Pakistan. Exploiting the exit and entry of private schools and an instrumental variable that affects the cost of opening a private school, I find that competition increases private schools' targeting of wealthy students and reduces their targeting of poor students. An additional private school in the market increases within-school inequality in yearly test score gains by 0.1 standard deviations."

Many arguments promoting school competition are framed as pro-poor (elitist arguments are bad form these days), however the study shows that there might be diminishing returns and actually reduce learning for already enrolled poor students. Unfortunately the author does not follow up on one stark implication: the increased focus on wealthier students when the competition rises (as indicated in her own model). Therefore the issue does not seem to be informational (poor students choices are a worse match) as stated, but rather the schools own focus. These two issues might need to be disentangled further.

An interesting note, especially for fans of path-dependence, is that the presence of private schools is correlated to girls' government secondary school in the village (promoted mainly in 1980s through the Pakistan Social Action Program). Secondary-school educated young women are a key labor source for private school teaching, bringing on board another variable for education policy and territorial coverage of competition.

HT Development Impact

Interesting links

Interesting links of the week

- Winning elections one knock at a time, the importance of ground work/canvassing.

- Skeptics guide to institutions, 4 parts so far.

- Spain ranks highest in financial access according to this new study

- Chinese military classics on the economics of peace and war

- The myth of Armchair Socialist debunked?

- Development professionals and their (our) behavioral biases

What is Title Guarantee Worth in Land Markets? Evidence from Bengaluru, India - Working Paper

Land reform has been a constant topic not only on development literature but also in economics and politics for many years. Many popular movements (specially agrarian) have been focused on land distribution and ownership, although in later years the theme has been losing visibility (partly due to the diminishing role of agriculture in many economies, partly due to its association with 'marxist' movements vis a vis 'free market'). On the other hand the issue of titling urban settings, specially in relation to squatter/slums in developing countries has garnered more recent attention (probably it most well known leader being Peruvian Hernando De Soto). Venkataraman's "What is Title Guarantee Worth in Land Markets? Evidence from Bengaluru, India" falls in this last group by looking at the premium generated not only by a solid/guaranteed claim but also adequate planning in urban settings.

Abstract:     

"Land reforms require urgent attention in emerging market economies, and there is a vast body of literature that deals with the economic impact land reforms, especially land titling (Acemoglu et al., 2001). India, like other developing economies, has a presumptive titling system which is notoriously inefficient: a law that is in the draft stages of consultation is the Draft Land Titling Bill, 2011, which seeks to replace presumptive titles with conclusive ones. However, there is no study that has looked at the cost of not having an appropriate titling system. In this study, I attempt to quantify the premium paid towards title by using a quasi-natural experiment on differential titles that is available in the Indian market, utilizing land prices in Bangalore, India. The differential title to land comes about as a result of State's activity in using eminent domain to acquire land parcels, conferring superior title on the parcels so acquired. A hedonic model is applied to a data set of 2263 observations of appraised land values to tease out the impact of guaranteed land title on land prices."

The paper finds that the land title premium represents, in this case, a 4.3% increase in price. While this increase might not be significant enough for a private owner, as the costs of securing rights may easily overcome any expected profits, it begins to become significant for larger private developers and governments. The author calculates that for Karnataka real estate alone the welfare loss (fancy word for the amount the % increase is not currently realized) is at least 430 million USD, while the cost to the state to deliver title guarantee is 6.6 million USD (although probably that budget would dramatically increase if it were to cover the whole state, I would imagine). A very large unrealized potential.

To note that, in the study, the solid title is produced through the use of eminent domain, wiping out potential competing claims through compensation and legal standing. A methodology that may be hard to scale up or replicate. Nevertheless, the study shows both the advantage of clear and uncontested land titles, and also the role of the state in providing a registration and guarantee service.

How Powerful is Rouhani in the Islamic Republic? - Research Paper

Iran's Nuclear talks have recently been extended, whether because Rouhani's engagement or the late rapprochement between USA and Iran due to Daesh/ISIL still remains to be seen. Bastani's "How Powerful is Rouhani in the Islamic Republic?" has a look at the power dynamics within the Iranian government around two key points: President Rouhani's standing vis a vis Supreme Leader Khamenei, and secondly the how the nuclear talks shape does dynamics.

This is an interesting paper that reminds us that while leadership is important, aligning interest groups (in a wider sense) and coalition building are fundamental for actual policy change.

Introduction

"One of the key questions being asked about the negotiations over Iran’s nuclear programme is how powerful President Hassan Rouhani really is within Iran’s unique political system. In other words, in a country where the key power-holder is the Supreme Leader, do Rouhani and his colleagues have the ability to advance their agenda and implement an international nuclear agreement despite their powerful opponents? This question is of particular importance because during the presidency of pro-reform Mohammad Khatami, Rouhani was in charge of the nuclear talks and reached an important arrangement with the international community, suspending uranium enrichment and opening nuclear facilities to International Atomic Energy Agency inspections; a few years later, however, Ayatollah Khamenei, who was unhappy with the attitude of the Western powers towards Iran, halted the implementation of these arrangements.

With this historical perspective in mind, an examination of the balance of power in Iran under Rouhani’s presidency, and a review of the tools at his disposal and those in the hands of his powerful rivals, is critical. This paper examines Rouhani’s chief priorities in the domestic and foreign domains; analyses the factors that help, and those that impede, his administration in attaining its goals; and assesses the relationship between the president and Iran’s other institutions of power, including his influence on the country’s security apparatus. Finally, the effects of the possible success and failure of the Rouhani administration, particularly in respect of the nuclear dossier as its most important priority, will be examined.

It should be noted that the focus of this paper is on the power balance within the Iranian regime. An examination of the role of the elite and of the discontented masses in the overall picture would require a separate study"

Summary from the paper below the fold

The Knowledge and Policy Limits of New Institutional Economics on Development - Paper

Institutions have become the buzzword in development int the past decade, more and more books, articles and Noble Prices go to the field of study where culture and economics interact. Tamanaha's paper "The Knowledge and Policy Limits of New Institutional Economics on Development" wades into the debate by not only highlighting the different interpretations of 'institution' but also the limits that this new institutionalist drive encounters.

Abstract:     

"New Institutional Economics (NIE) has secured impressive achievements in academia and policy circles. The World Bank and other development organization in the past two decades have expended billions of dollars on efforts to build “good governance” and the “rule of law” informed by the NIE theory that economic development requires supportive political and legal institutions. NIE appears to be the new consensus view of development thinking, supplanting the neo-liberal Washington Consensus that dominated global development policy in the 1980s and 1990s. NIE scholars interested in development are currently engaged in an effort to map and measure the institutional terrain with the expressed purpose of producing policy advice on how to improve economic performance through institutional reform.

This essay elaborates on the barriers that stand in the way of the knowledge and policy goals of NIE. Foremost is the “interconnectedness of society:” cultural, technological, legal, political, and economic activities all affect one another and are affected by one another, often in ways that are subtle and all but invisible; each situation unique in its constellation of social forces and is dynamic, constantly changing in reaction to surrounding influences. To show why these aspects cannot be overcome by NIE scholars, I explore the ongoing struggle to identify a shared conception of “institution” — and I explain why this cannot be solved. For reasons I go on to elaborate, NIE scholars also will not be able to get a precise grip on the surrounding institutional influences that affect economic development. This incapacity shows up time and again in NIE research. The same barriers that stand in the way of knowledge also promise to stymie the policy ambitions of NIE scholars who seek to promote economic development. NIE scholars today, it turns out, are repeating lessons announced five decades ago in the law and development field. The problems were insuperable then and will remain so. Owing to these barriers, little advice can be offered beyond commonsense recommendations — pay attention to local circumstances, experiment to find out what works, don’t apply a “one size fits all” model. Interconnectedness, dynamism, and uniqueness are behind this advice. While critical of NIE knowledge and policy objectives, this essay is not negative in orientation. NIE research is illuminating. Greater awareness of the limits will help orient future work in the field in the most fruitful directions."

 

I am not so sure NIE has fully supplanted the Washington Consensus, but it is true that the language around development has shifted towards governance, institutions, rule of law and the like. Whether this represents a larger shift in global thinking remains to be seen, as many discussions around global economic social and political relations are still stuck in the old paradigm (i.e. austerity, organized crime, migration)... and these have as much impact (or more) on development than the development sector itself. While NIE does acknowledge the importance of informal institutions, the greater focus on formal/legal ones does a disservice to the discipline and undermines its utility for practitioners.

The author also points out something that anybody coming into economics from another academic area realizes really quick: economic tools are very, very abstract and inadequate to deal with actual social dynamics. While there is more interest in behavioral economics and other attempts to bridge that gap, there is always a nagging feeling that economists are reinventing the wheel and catching up with discussions that other subject had, at least, a couple of decades ago.

Overall the paper is a good primer on where New Institutional Economics is and the debate on what an institution is.