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Institutional Microeconomics of Development

Institutional Microeconomics of Development

Timothy Besley
Rajshri Jayaraman
Copyright Date: 2010
Published by: MIT Press
Pages: 264
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  • Book Info
    Institutional Microeconomics of Development
    Book Description:

    The narrative of development economics is now infused with discussions of institutions. Economists debate whether institutions--or other factors altogether (geography, culture, or religion)--are central to development. In this volume, leading scholars in development economics view institutions from a microeconomic perspective, offering both theoretical overviews and empirical analyses spanning three continents. After substantial introductory chapters by Pranab Bardhan and Marcel Fafchamps, two scholars who have published important work on this topic, each of the remaining chapters examines a particular set of institutions in a unique setting. These chapters treat the effects of Angola's violent conflict on that country's development; institutional accountability in Uganda; the effect of Indonesia's ethnic diversity on the distribution of public goods; the impact of trade liberalization on India's investment climate; extended family networks in Mexico; and a microeconomic perspective on land rights in Ethiopia. The chapters demonstrate the remarkable heterogeneity of institutions--policy change is mediated through local market institutions, government institutions, and families--as well as the empirical and methodological ingenuity of current research into this crucial topic. Contributors Manuela Angelucci, Oriana Bandiera, Pranab Bardhan, Timothy Besley, Martina Björkman, Robin Burgess, Giacomo De Giorgi, Stefan Dercon, Marcel Fafchamps, Rajshri Jayaraman, Pramila Krishnan, Eliana La Ferrara, Gilat Levy, Marcos A. Rangel, Imram Rasul, Ritva Reinikka, Jakob Svensson

    eISBN: 978-0-262-28918-4
    Subjects: Economics, Business

Table of Contents

  1. Front Matter
    (pp. i-iv)
  2. Table of Contents
    (pp. v-vi)
  3. Series Foreword
    (pp. vii-viii)

    This book is part of the CESifo Seminar Series. The series aims to cover topical policy issues in economics from a largely European perspective. The books in this series are the products of the papers and intensive debates that took place during the seminars hosted by CESifo, an international research network of renowned economists organized jointly by the Center for Economic Studies at Ludwig-Maximilians-Universität, Munich, and the Ifo Institute for Economic Research. All publications in this series have been carefully selected and refereed....

  4. List of Contributors
    (pp. ix-xii)
  5. Introduction
    (pp. 1-14)
    Timothy Besley and Rajshri Jayaraman

    The narrative of development economics is now infused with discussions of institutions. From an analytic point of view, game-theoretic tools are now routinely brought to bear in understanding how institutions shape incentives. Empirically, institutions are given a central role in accounts of the forces that shape development and growth. Recent research has taken measurement in exciting new directions, enabling researchers and policymakers to better appreciate how institutions and institutional change matter.

    This book brings together a collection of microeconomic perspectives on institutions from a group of leading scholars in development economics.¹ The role of institutions in economic development is the...

  6. 1 Institutional Economics of Development: Some General Reflections
    (pp. 15-40)
    Pranab Bardhan

    Institutional economics is now a thriving subject in development, as it should be, because the major difference between the economics of rich and poor countries is arguably in the different institutional frameworks we implicitly or explicitly use in understanding or analyzing them. Other substantial differences, say, in geography or culture or history, also work sometimes through institutional differences. Because institutional economics of development is a vast subject, in this chapter I confine myself to a subset of institutional issues, still keeping the range rather broad, broader than most of the other chapters in this book.

    After a brief foray into...

  7. 2 Spontaneous Markets, Networks, and Social Capital: Lessons from Africa
    (pp. 41-88)
    Marcel Fafchamps

    Recent years have witnessed a renewed interest in institutions as an essential ingredient for growth (World Bank 2002). There is now an abundant literature documenting the role that institutions play in the development process (Keefer and Knack 1997; Acemoglu, Johnson, and Robinson 2002). Market institutions in particular appear central to this process (North 1973; Acemoglu, Johnson, and Robinson 2005), so much so that they are now commonly seen as a critical component of a good business environment. However, beyond generalities about courts and the respective merits of common law versus Roman law, little practical advice is available on how to...

  8. 3 Financial Markets and Conflict in the Developing World
    (pp. 89-116)
    Eliana La Ferrara

    A significant part of the developing world, especially in sub-Saharan Africa, has been plagued by a massive wave of civil conflicts in the past thirty years. It is estimated that in the last sixty years ʺabout 40 percent of countries with a 1990 population of at least half a million have had at least one internal conflict that killed at least 1,000 peopleʺ (Fearon 2005, 1). This has captured the attention of policymakers, who have singled out violent conflict as one of the major causes of underdevelopment (e.g., World Bank 2003), and it has spurred a growing number of studies...

  9. 4 Liberalization Meets Investment Climate
    (pp. 117-134)
    Robin Burgess

    The last three decades have witnessed a departure from the model of planned industrialization that dominated development policy in the postwar period. The emphasis on planning as a means of engendering industrial development was replaced by an emphasis on liberalization and competition. In their quest for growth many developing countries abandoned central planning, dismantled government controls over industry, and liberalized trade. This shift from government control to the promotion of competition represents a key paradigm shift in development policy over the past fifty years.

    A parallel shift has been the growing focus on institutional factors as a key driver of...

  10. 5 Local Democracy and Ethnic Diversity: A Review, a New Framework, and Some Evidence from Indonesian Villages
    (pp. 135-156)
    Oriana Bandiera and Gilat Levy

    During the past decade several developing countries have undertaken extensive decentralization programs entailing the devolution of political decision-making power to small local entities. Concurrently, the World Bank and international aid donors have redirected funds toward programs over which local communities hold direct management and control rights.

    In both cases, the presumption is that giving decision-making power to local communities is good for the poor because it gives them a voice, thus improving the fit between policies and their needs. This notwithstanding, if village elites dominate the decision-making process, granting decision-making power to local communities might fail to bring the poorʹs...

  11. 6 Local Accountability Improves Health Services
    (pp. 157-174)
    Martina Björkman, Ritva Reinikka and Jakob Svensson

    As policymakers in developing countries search for ways to improve health and education for the poor—which, in turn, would boost economic and social development—it is becoming clear that more is required than just additional funds. A key obstacle to better public services looks to be the weak incentives that providers face. Schools and health clinics are not open when they should be. Teachers and health care workers are frequently absent from schools and clinics, and even when there, they spend a significant amount of time not serving the intended beneficiaries. Equipment, even when working, is not used. Drugs...

  12. 7 Extended Family Networks in Rural Mexico: A Descriptive Analysis
    (pp. 175-210)
    Manuela Angelucci, Giacomo De Giorgi, Marcos A. Rangel and Imran Rasul

    Economists usually focus on the household as the key unit of analysis from which to study household behavior. There are good reasons for this. Theories of household behavior, such as the unitary model (Becker 1981), bargaining models (Manser and Brown 1980; McElroy and Horney 1981), collective choice models (Chiappori 1988), and noncooperative models (Chen and Woolley 2001) all emphasize the interplay among the preferences and resources of individuals within the household in shaping household outcomes. In addition, household data are typically constrained in the sense that it is not possible to identify the familial ties between surveyed households.

    However, every...

  13. 8 Land Rights Revisited
    (pp. 211-238)
    Stefan Dercon and Pramila Krishnan

    The role of property rights in development has long been one of the central themes in the economic analysis of institutions. Behind much of this work is a hypothesis that well-defined individual property rights, codified and protected by the state, provide a central precondition for economic growth. Arguments for this view can be found in the work of classical economists such as Adam Smith.¹ More recently, this view was revived in the work of economists such as Coase (1960) or Demsetz (1967) and, within a historical context, North (1981). Macrolevel studies provide suggestive evidence that institutions governing property are an...

  14. Name Index
    (pp. 239-244)
  15. Subject Index
    (pp. 245-250)