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Lecture 1: Introduction to the political economy of natural resources Lecture 2: Theories of collective action, cooperation, and common property
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tarix | 15.08.2018 | ölçüsü | 118 Kb. | | #62884 |
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Property Rights and Collective Action in Natural Resources with Application to Mexico Lecture 1: Introduction to the political economy of natural resources Lecture 2: Theories of collective action, cooperation, and common property Lecture 3: Principal-agent analysis and institutional organization Lecture 5: A political economy model Lecture 6: Power and the distribution of benefits with application to Mexico Lecture 7: Problems with empirical measurement with application to Mexico Lecture 8: Beyond economics: An interdisciplinary perspective
Why property rights important Allow markets to function Increase incentives to invest If transaction costs = 0, fully defining property rights gets us to an efficient outcome
Transaction costs If transaction costs > 0, asset ownership confers power Transaction costs of an exchange: - Negotiating the agreement
- Writing a contract
- Observing/monitoring the agreement
- Enforcing agreement of contract is broken
What is a property right? Residual rights of control Ability to specify unspecified uses Ability to alienate others from use of the property Who owns what determines efficiency if transaction costs > 0 Incomplete contract (IC) theory: concerned with the most efficient allocation of property rights.
What is an incomplete contract? Transaction costs make contracts incomplete Bounded rationality: - Background assumption to incomplete contracts.
- Cannot think through all branches of a decision tree.
- Cannot represent everything in a contract.
- E.g. complicated bilateral relations.
People deal with this bounded rationality in a substantively rational way.
Incomplete Contract Theory Grossman and Hart (1986) Hart and Moore (1990) Hart (1995) Different than Williamsonian transaction costs analysis Allows renegotiation
Model 2 parties: i = A and B Each party may be an “expert” to work with some physical asset KA and KB respectively Both parties A and B can expend investments (a and b, respectively) in human capital These investments are nonverifiable Other party cannot buy this capital
Timeline of Production Relationship
Model Notation Let K = {KA, KB} Ki is set of asset owned by i Denote KA KB = K Denote KA KB =
Default payoffs Individual payoffs if do NOT work together: VA[KA, a, 0] VA[KA,a] VB[KB, 0, b] VB[KB,b]
Payoffs with Trade Total payoffs if work together: V[K, a, b] Payoff to us: less notation!
Physical Asset versus Human Capital (or Relationship) Specificity Investment ai party i is: Purely relationship specific when the marginal return is 0 unless parties work together Relationship specific when the marginal return positively depends on access to aj Purely asset specific if the marginal return depends (only) on party i’s access to Kj
Basic Assumptions V[K, a, b] > VA[KA,a] + VB[KB,b] Ki - GAINS TO TRADE: it is efficient to work together
- Let ai = {a if i=A, b if i=B}
Vai [.] Viai [ K, ai] Viai [ Ki, ai] Vai [Kj, ai] Vai [, ai] - Marginal returns from investments are weakly larger the more human and physical capital a party has access to, i.e. relationship specificity exists.
Asset complementarity An asset is complementary when: Viai [K, ai] > Viai [Ki, ai] (access to both assets K makes you more productive) An asset is strictly complementary when: Viai [Ki, ai] goes to 0 (you need access to Kj as well) An asset is independent when: Viai [K, ai] = Viai [Ki, ai] (one asset suffices for your productivity)
Equilibrium analysis Backwards induction: start with Date 2 Date 2: Investments a and b are “sunk” Since V(.) > VA (.) + VB(.) a,b,Ki, then parties will agree on “working together” but choose investments noncooperatively ex post efficiency Division of joint surplus V(.): Nash bargaining solution Party i obtains: - Default payoff: Vi[Ki , ai]
- Fraction i [0,1] of “excess surplus”:
V = V(.) - VA (.) - VB(.)
Who should own what? Compare investments levels under various ownership configurations and contracting conditions (e.g. specificity, complementarity, cooperative v. noncooperative investments) The configuration yielding highest total surplus (both A and B’s payoffs combined) is most efficient given the conditions.
A owns KA and KB: Integration UIA = VA[K, a] + A[V[K,a,b] - VA[KA,a] -VB[,b] ] - a UIB = VB[0, b] + (1-A)[V[K,a,b] - VA[KA,a] -VB[,b] ] – b FOCs: A: (1- A) VAa [ K, a] + A Va [ K, a, b] = 1 aI B: A VBb [,b] + (1- A) Vb [ K, a, b] = 1 bI
A owns KA, B owns KB: Nonintegration UNIA = VA[KA, a] + A[V[K,a,b] - VA[KA,a] -VB[KB,b] ] - a UNIB = VB[KB, b] + (1-A)[V[K,a,b] - VA[KA,a] -VB[KB,b] ] – b FOCs: A: (1- A) VAa [KA, a] + A Va [ K, a, b] = 1 aNI B: A VBb [KB,b] + (1- A) Vb [ K, a, b] = 1 bNI
First-Best Efficient Outcomes Parties “work together” and choose investments cooperatively first-best outcome Investment levels are: [a*, b*] = argmaxa,b V{K,a,b] – a – b FOCs: Va = 1 ; Vb = 1 Simple!
First Result Under any ownership structure (i.e. integration or nonintegration) there is underinvestment in relationship-specific investments (Hart 1995), that is: a* > aI or aNI and
Marginal productivity of investments
Other Results If investments by one party are inelastic, then integration by the other party is optimal If assets are independent, then nonintegration is optimal If assets are complementary, then some form of integration is desirable. If one party’s HK is essential, then integration by that party is optimal If both parties’ HK are essential, then all ownership types are equally optimal.
Critique of Incomplete Contracts Maskin and Tirole (1999): - Agents have bounded rationality but deal with noncontractibility in a rational way
- does BR constrain set of feasible contracting outcomes relative to complete contracts?
- Counter-theorem: Nondescribability is irrelevant under certain conditions
Segal and Hart: as number of possible states of world increase, null (incomplete) contract is optimal.
Application to Mexico Community Forestry Production What explains the vertical integration pattern across Mexican communities with forest? Apply and extend incomplete contract model Assume two parties: - A = community
- B = downstream firm/buyer
Assets: - Forest land, extraction equipment, milling and processing equipment.
Assets and investments: Extraction
Assets and investments: Milling
Assets and investments: Secondary processing
Examples of Unforeseeables Rainy season Access problems Equipment failure Scheduling problems Timber condition Failure to pay, deliver Un-monitored extraction
An IC Model Survey data from 43 observations in Oaxaca (see Antinori (2000)) Ownership possibilities: - Assume communities can own forest land and any downstream equipment
- Assume outside private firms can own any downstream equipment for wood production and can contract with communities for raw material.
Tradeoffs: need for specialized expertise and overcoming collective action hurdles v. benefits of ownership (see Antinori and Rausser (2007) for details)
Econometric Model of Vertical Integration Ordered logit (see paper for details) Dependent variable: level of community vertical integration (sale of stumpage, roundwood, lumber of secondary goods) Independent variables: Influences on ability to coordinate, produce: - Past mechanical training (+ and significant)
- Initial logging roads (not significant)
- Parastatal existence (+ and significant)
Contracting costs, valuation: - Forested hectares (+ and significant)
- Forest quality (initial) (+ and significant)
- Distance to pop center (+ and significant)
- Non-commercial timber forest uses (not significant)
Conclusions Ownership of assets critical for control over benefits when transaction costs present Limitations of PR approach: - Collective decisionmaking still not completely modeled in firm.
- Beyond property rights as control over assets
Asset Wealth Oliver and Shapiro: Black Wealth/White Wealth: - Persistent wealth gap versus income gap in the United States between black and white
- Limits opportunities
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