ec 307 lt lecture 2 - land
Post on 06-Apr-2018
217 Views
Preview:
TRANSCRIPT
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 1/40
Land, Agricultural Labor & LandReform
EC 307 –
Development Economics
LT 2012
Lecture 2
Greg Fischer
17 January 2011
70% of the poor world relies on agriculture.
How to help these people technologicallyand economically etc.how to provide them with information,credits etc.
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 2/40
Agriculture & Land Reform
Agriculture & Land Reform
• Remain enormously important in world – Close to half of world’s population works in agriculture
– 50% in China; 57% in India
– And most of the world’s poor
• Canonical example of missing markets
EC307: Lecture 2 1
Why are we are talking about agricultureand farms
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 3/40
Agriculture & Land Reform
Agriculture & Land Reform
• Introduction to agricultural markets and labor supply
• Critically assess land reform
• Develop three analytical tools: – Basic theory for problems of imperfect information:
unobserved actions
– Fixed effects
– Differences-in-differences
EC307: Lecture 2 2
Goals for this week
actions under the contract are not observable.
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 4/40
Agriculture & Land Reform
Agriculture & Land Reform
1. Puzzles in the efficiency of land use2. Incentive problems: A simple model of
sharecropping
3. The cases for land redistribution or tenancyreform
4. Testing the effectiveness of one reform
EC307: Lecture 2 3
Outline for today
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 5/40
Agriculture & Land Reform
Agriculture & Land Reform
1. Puzzles in the efficiency of land use2. Incentive problems: A simple model of
sharecropping
3. The cases for land redistribution or tenancyreform
4. Testing the effectiveness of one reform
EC307: Lecture 2 4
Outline for today
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 6/40
Agriculture & Land Reform
Agriculture & Land Reform
• Technology with fixed costs (bullocks, tractors,etc.)
• Larger farms have better access to capital
• Larger farms have better access to “politicalinputs”
• Better farmers may accumulate more land
EC307: Lecture 2 5
There are many reasons to think large farmsshould be more productive than small
Large farms might be more productive than smaller ones: High fixed costs-tractors, Buying fertilizers in bulk for huge lands,
easier access to credits, more bargaining power in selling powers, more probable in investing in learning new techniques
(spread that know how over a large area)
gains of trade
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 7/40 Agriculture & Land Reform Agriculture & Land Reform
• Variance in land quality• Rental markets in some capital goods
• Slow pace of technological change: perhaps skill
not that important
EC307: Lecture 2 6
Despite mitigating factors
These factors still persistCannot find evidence of positive productivity-
size relationship in the data
It’s not from a lack of looking
, but…
buying a tractor and rentingit to many farmers
watch this part in lecture
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 8/40 Agriculture & Land Reform Agriculture & Land ReformEC307: Lecture 2 7
compare productivity of small to large farms: small farms are more productive..50%, 175%...we are overlooking at the agencyproblems...how contract delegates responsibilities and rewards to concerned signees of the contract..workers might not have thesame incentives thus, motivation like the owner farmer
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 9/40 Agriculture & Land Reform Agriculture & Land Reform
• Why might we see decreasing returns?
Agency problems
• Large farms cultivated by hired labor – Few incentives to work hard
• Small farms are typically owner-cultivated
EC307: Lecture 2 8
So what is going on?
Could land redistribution improve productivity?these things would have to be true:the new land will have higher marginal product...there is a good credit market...there is a need for clarity ofownership..they have to be willing to hire more labor..decreasing MP of labor...but again it comes back to the originalproblem..it should be the case that the buyers will work in the farm with the same incentives as before
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 10/40 Agriculture & Land Reform Agriculture & Land Reform
What do you think?
EC307: Lecture 2 9
Why can’t owners give right incentives toworkers?
cant observe how much effort they put, difficult to match fixed wages with the amount of work they do
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 11/40 Agriculture & Land Reform Agriculture & Land Reform
1. Puzzles in the efficiency of land use2. Incentive problems: A simple model of
sharecropping
3. The cases for land redistribution or tenancyreform
4. Testing the effectiveness of one reform
EC307: Lecture 2 10
Outline for today
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 12/40 Agriculture & Land Reform Agriculture & Land Reform
• Tenant farms land and applies effort e – Unobservable to landlord
• Effort is costly to the tenant:
• Two possible outcomes – With probability e: Output is H
– With probability 1-e: Output is 0
• Tenant can choose to work elsewhere and
obtain
EC307: Lecture 2 11
Incentive Problems: A simple model of sharecropping
2
2
1ce
w
the extra effort becomes costlier as oneputs more effort
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 13/40 Agriculture & Land Reform Agriculture & Land Reform
• Maximize:
• Solution:
EC307: Lecture 2 12
What is the optimal effort level?
212(1 )0eH e ce
*
0 H ce
H e
c
If all I care about is output, e = 1
Comparative statics: how the variable of interest changes by the parameters of the modelWhen output increases, effort goes up..if cost of effort increases, effort decreses
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 14/40 Agriculture & Land Reform Agriculture & Land Reform
• Effort unobservable• Contract specifies payment to tenant in both
states of world. Write as (h,l)
–
–
• Some contract types
– Wage contract: – Fixed rent:
– Sharecropping:
EC307: Lecture 2 13
Contracts take the following form
h H
l
if output is
if output is 0
( , )w w( , ) H r r
( , 0) H in exchange for working on the land, thefarmer gets some amount of the output
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 15/40 Agriculture & Land Reform Agriculture & Land Reform
• Work sequentially, given h and l, what is tenant’seffort choice?
• Tenant wants to maximize income minus cost of
effort:
• So what is the tenant’s optimal effort choice?
This gives us the incentive compatibility constraint
EC307: Lecture 2 14
Solve for optimal contract without worryingabout limited liability or outside option
21(1 )
2eh e l ce
*
T
h le
c
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 16/40 Agriculture & Land Reform Agriculture & Land Reform
• We want these two efforts level to be equal• The tenant pays r and receives all the income in
every state of the world
• This is a fixed rent contract
• It also means tenant bears all the risk
EC307: Lecture 2 15
What contract induces the tenant to choosethe optimal effort level?
*
T h le
c
* H ec
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 17/40
Agriculture & Land Reform Agriculture & Land Reform
• So what does?• Landlord needs to convince tenant to work
• Tenant must receive at least the utility of his
outside option• In math:
• This is the participation constraint
EC307: Lecture 2 16
Does this pin down the contract (h,l)?
w
* * *21(1 )
2e h e l ce w
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 18/40
Agriculture & Land Reform Agriculture & Land Reform
• Limited liability• Risk aversion
• Two-sided effort
EC307: Lecture 2 17
Consider modifications moving towardsreality
eg. more investments to complementlabor
but the same optimality condition doesnt hold for this cuslandlord doesnt have any return to extra investment
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 19/40
Agriculture & Land Reform Agriculture & Land Reform
• Imagine tenant cannot receive a negativepayment
• What will l be?
• What will e be?
EC307: Lecture 2 18
Limited liability constrains what tenant canbe paid/pay in bad states of the world
Zero: HW
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 20/40
Agriculture & Land Reform Agriculture & Land Reform
• Rewriting
EC307: Lecture 2 19
Return to landlord’s maximization problem
( , )max ( ) (1 )(0 )
. .
h l e H h e l
s t e
e
solves tenant's max. problem (IC)
satisfies tenant's participation cnst. (PC/IR)
2
max [ ]
1. . 2
2
h
h H h
ch h
s t h c w h wcc c
h l he
c c
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 21/40
Agriculture & Land Reform Agriculture & Land Reform
• How does effort compare to the case withoutlimited liability?
• Why is effort lower?
• What is the effect of increasing the outsideoption?
EC307: Lecture 2 20
Interpreting these results
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 22/40
Agriculture & Land Reform Agriculture & Land Reform
• With risk neutrality, the optimal contract forcesthe tenant to bear all the risk
• If he’s risk averse, may want some insurance
from the landlord
• Some intuition:
– What do you think happens?
• Setting up the problem...
EC307: Lecture 2 21
What if the tenant is risk averse?
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 23/40
Agriculture & Land Reform Agriculture & Land Reform
• What are you trying to maximize?• What tools do you have at your disposal
• What constraints do you have to satisfy
– Participation – Incentive compatibility
EC307: Lecture 2 22
Setting up the contracting problem with risk aversion
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 24/40
Agriculture & Land Reform Agriculture & Land Reform
1. Puzzles in the efficiency of land use2. Incentive problems: A simple model of
sharecropping
3. The cases for land redistribution or tenancyreform
4. Testing the effectiveness of one reform
EC307: Lecture 2 23
Outline for today
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 25/40
Agriculture & Land Reform Agriculture & Land Reform
• Return to inverse relationship between land sizeand productivity
• Potential explanations:
– Land quality
– Farmer characteristics
– Incentive problems
– All of the above?
EC307: Lecture 2 24
How important are incentive problems?
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 26/40
Agriculture & Land Reform Agriculture & Land Reform
• Use ICRISAT data – Very detailed panel from Indian villages
• Compare inputs and productivity on both types
EC307: Lecture 2 25
Binswanger and Rosenzweig try to separate
ij ij i ij R
iji jwhere is farmer 's outcome on plot
ij R indicates if plot is rented
i is an observed but fixed individual effect
i ij R Suppose worried that is correlated with
B is -ve if farmers are lessproductive in rented lands
but good farmers
might buy the land towork on
W t f b d i di id l
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 27/40
Agriculture & Land Reform Agriculture & Land Reform
• Some individuals cultivate both owner-operatedand rented plots
• Control for individual fixed effects• For example, for farmers that cultivate two plots,
can run regression:
• … and the fixed effect is gone?
EC307: Lecture 2 26
We can account for unobserved individualcharacteristics
ij ij i ij R
1 2 1 2 1 2i i i i i i R R cus its the same farmer
Bi d R i fi d t
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 28/40
Agriculture & Land Reform Agriculture & Land Reform
• What does this suggest?
• What could still be wrong?
• Note: it’s not enough to say “errors could still becorrelated with RHS variables”
• Need a plausible story
EC307: Lecture 2 27
Binswanger and Rosenzweig find strongnegative
1 2 1 2 1 2i i i i i i R R
plots of land rented might be (is) worse than the oneowned..if we avoid this, we will overestimate thedisincentive to work on the rented land
Sh b (1987) d t b t l
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 29/40
Agriculture & Land Reform Agriculture & Land Reform
• Finds individuals work 40% more on their ownland (controlling for land size)
• Productivity 15% to 30% higher on own land
EC307: Lecture 2 28
Shaban (1987) uses same data but alsocontrols for plot quality
Suggests incentive problems are key source of
inverse size-productivity relationship
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 30/40
Agriculture & Land Reform Agriculture & Land Reform
1. Puzzles in the efficiency of land use2. Incentive problems: A simple model of
sharecropping
3. The cases for land redistribution or tenancyreform
4. Testing the effectiveness of one reform
EC307: Lecture 2 29
Outline for today
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 31/40
Agriculture & Land Reform Agriculture & Land Reform
• Prominent in 1960s and 1970s as mechanismfor achieving “redistribution and growth”
• Comes in two flavors
– Land redistribution
– Tenancy reform
EC307: Lecture 2 30
Land reform
E i t t d t thi k di t ib ti
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 32/40
Agriculture & Land Reform Agriculture & Land Reform
1. Land cannot flee to Switzerland and cannothide
– But formal ownership is not effective control
2. Fewer distortions
– What happens if tax income?
– But may be politically very costly
3. Can we assess effect of land redistribution per
se? – What is the effect of wealth shock on recipients?
EC307: Lecture 2 31
Economists tend to think redistributingmoney is better, so why redistribute land?
work less hard orhide that income
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 33/40
Agriculture & Land Reform Agriculture & Land Reform
1. Puzzles in the efficiency of land use2. Incentive problems: A simple model of
sharecropping
3. The cases for land redistribution or tenancyreform
4. Testing the effectiveness of one reform
EC307: Lecture 2 32
Outline for today
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 34/40
Agriculture & Land Reform Agriculture & Land Reform
• Few studies of efficiency effects of large-scaleproperty rights reforms
– Tend to be accompanied by social unrest
• Banerjee, Gertler, Ghatak (2002) study tenancy
reform in West Bengal
– Not redistribution
– Improvement in tenants’ rights
– If registered, cannot be evicted if pay 25% of output tolandlord
EC307: Lecture 2 33
Does land reform work?
tenants do everything to reap benefits in short term so if we can makethem feel they can own it for longer term, they might invest on theland for better
Consider two channels
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 35/40
Agriculture & Land Reform Agriculture & Land Reform
• Tenant & landlord negotiate over share• Before reform, what happens if disagree?
• What happens to tenant share of income?
• Is this good or bad for productivity?
EC307: Lecture 2 34
Consider two channelsFirst: Improved bargaining power
Consider two channels
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 36/40
Agriculture & Land Reform Agriculture & Land Reform
• Why might security of tenure have positiveproductivity effect?
– Consider long-term investments
• Why might it have a negative effect?
– What are the incentives for effort?
EC307: Lecture 2 35
Consider two channelsSecond: Security of tenure
So how do you answer the question?
less worried aboutconsistency of returnslandlord has less incentive toinvest now
The effect of reform:
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 37/40
Agriculture & Land Reform Agriculture & Land ReformEC307: Lecture 2 36
The effect of reform:Looking at simple differences across time
Before After Difference
West
Bengal 1308 1650 342
after: 1650difference: 342This difference doesntsay anything about theeffect of the reform.There could be otherthings happening at
that time..Greenrevolution in India etc.
Consider one part of their paper:
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 38/40
Agriculture & Land Reform Agriculture & Land Reform
• Bangladesh – Neighboring country
– Similar agricultural characteristics
– No reform
EC307: Lecture 2 37
Consider one part of their paper:West Bengal vs. Bangladesh
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 39/40
Agriculture & Land Reform Agriculture & Land ReformEC307: Lecture 2 38
Simple difference across countries
AfterReform
West
Bengal 1650
Bangladesh 1562
Difference 88
8/3/2019 EC 307 LT Lecture 2 - Land
http://slidepdf.com/reader/full/ec-307-lt-lecture-2-land 40/40
Difference-in-Difference Estimator
Before After Difference
West
Bengal 1308 1650 342
Bangladesh 1297 1562 265
Difference 11 88 77difference is 80..there will moredifferences btwn characteristics ofland and land productivity betwnbangladesh and west bengal..
difference 11 88 77
top related