Compliance Cost Reduction and Enterprise Compliance: A Comparison of Institutional and Efficiency Analysis Perspectives
Charles Omog Abuodha
Institute for Development Studies, Kenya

The paper provides institutional concerns that arise with enterprise regulation. It is based on a de-regulation research project for micro and small enterprises (MSEs) in Kenya. License de-regulation in Kenya has taken the form of a shift from Multiple Business Licence (ML) system to a business tax regime titled the Single Business Permit (SBP) system. The reform program is fundamentally neo-classical in approach, building from recent trends in law and economics research that seeks to reduce the regulatory burden on enterprises. In congruence with the one-stop-shop conceptualisation, policy makers view reduced regulatory burden as the panacea for local government-MSE relations. The SBP program seeks to: reduce compliance costs, eradicate corruption, increase local authority revenues, and reduce conflicts (amongst MSE enterprises, and between MSEs and local authority). An institutional analysis of the regulation problem reveals differently. The institutional analysis of regulation reveals an entrenchment of institutions that negate the reduced compliance cost initiative.

The institutional analysis of the program underscores the multiplicity of rules in enterprise regulation (multiple formal and informal laws). These provide enterprises with choices. The reformed regulatory program becomes a choice amongst many. Enterprises use different rule forms for varied aspects of enterprise regulation. Compliance costs does not determine the compliance to reformed institutions. Path dependency in enterprise networks, punitive action, and regulatory-agents to enterprise-owner bargaining arrangements limit the impact of the reform programs. The perception of local authorities on enterprise aspiration is in divergence with those of enterprises. Perceptions on Government commitment, and reason for reform are crucial in determining the success of the reform program. Finally, the role of ethnicity as a base within which enterprises network and operate is important in defining perceptions, acceptance and actual compliance with a reform program. The paper concludes by noting low objective achievement of the de-regulation program despite obvious efficiency benefits of the SBP program. Programs on de-regulation must have institutional evaluations alongside efficiency evaluations.


Efficiency Paper
Charles Omog Abuodha
Institute for Development Studies, Kenya

Whilst, significant advances have been made in institutional economics research, such advances have focused on the revisiting and re-analysing sectoral policies and inter-relationships. The other strand of literature reviews discrepancies between expected policy effects and actual policy effects. Both these aspects are important, and by all means, frontal in institutional applications. However, these trends are second best strategy in the formulation of Institutionalists based policy. Policy development requires contextualisation and operationalisation of institutional efficiency. Given multiplicity of institutional choices, we have to develop intra-institutional efficiency comparisons, even as we compare cross-disciplinary (institutional v/s neo-classical based intervention programs). This paper is an attempt at cross-disciplinary comparison of institutional and neo-classical enterprise efficiency. The paper does not in any way claim to have developed institutional efficiency comparisons. What it does is to use empirical examples to differentiate, highlight, and compare neo-classical and institutional efficiency analysis amongst micro and small enterprises (MSEs) in Kenya. The paper is as much a discussion of the MSE sector as it is on institutionalism. This is due to the authors long standing research in the area.

The paper begins by revisiting the definitional debate that has shrouded MSEs amongst academicians and interventionists in the developing world. The paper suggests that the definition and identification of MSEs should focus on the character of institutions rather than size or performance of enterprises. The sector is the product of institutional engineering that seeks to integrate western production systems within local socio-cultural settings. As background discourse, the paper rethinks institutional aspects of firm formation, and highlights, that firm formation are community responses to available resource utilisation, rather than the traditional adage of profit search and the entrepreneurial spirit. The third aspect of the paper compares enterprise efficiency from an institutional and neo-classical perspective, and concludes, that institutional based analyses indicate greater firm and production factor efficiency than prescribed by neo-classical analysis.


Trade Liberalization Through Tariff Unification:  A Case of Russia
Sergey A. Afontsev
Institute for World Economy and International Relations, Russia

My interest in institutional economics has grown from the research on political economy problems of market transformation, and in particular on formulating and implementing trade policy reform. My previous empirical works on the political economy issues showed that the institutional dimensions of trade policy formation (i.e., distribution of decision making responsibilities among different administrative and parliamentary agencies, costs of forming a lobby by producers operating in particular industries, costs of influencing trade policy decisions by voter, etc.) significantly affect the nature of trade policy decisions and their implications for the aggregate welfare.

The application of standard tools of trade policy analysis and political economy models of trade protection, however, have important limitations in addressing these issues. They usually simply mention to the role played by different types of transaction costs at economic and political markets, but do not provide tools to analyze them. As a consequence, in my recent research project «Trade Liberalization through Tariff Unification: A Case of Russia» I try to use the structure-induced equilibrium approach to provide the systematic analysis of the trade liberalization problem in Russia. As documented in my previous papers, the most difficult problem faced by the Russian government in designing trade policy reform has to do with simultaneous minimization of (1) distortions induced by protectionist trade policy and (2) losses of budget revenues induced by tariff reductions. The situation is seriously aggravated by the fact that low fiscal discipline allow importers to use different methods of trade tax evasion, including those of misreporting trade articles subjected to higher tariffs for low-tariff ones. Thus, several types of transaction costs should be taken into account when studying the problem under consideration, including

·         costs of within-government interactions between agencies interested in maximization of trade tax revenues, on the one hand, and general welfare, on the other (the failure to apprehend that these functions are in practice separated within the government is one of the most important drawbacks of prevailing political economy models that postulate zero costs of government decision-making);

·         costs for producers of organizing lobby and influencing government decisions («political transaction costs»);

·         costs of importers’ tariff evasion practices imposed by the prevailing penalty profile (probability of being «caught in action» and the intensity of penalties);

·         costs of obtaining an access for imported goods (consumers can indeed prefer goods imported illegally as their «tariff-free» price is lower than price of officially imported goods subjected to tariff payments).

My study is to model in a formal way the behavior of these four groups of agents (government agencies, producers, importers, and consumers) and test empirical implications of these models in respect of the alternative strategies of trade liberalization. As the decrease in the degree of tariff evasion is the most obvious way to make up revenues lost due to tariff reduction, two possible methods to motivate importers to abolish tariff evasion practices are to (1) raise costs of evasion by strengthening monitoring of importers’ behavior and imposing higher penalties, and (2) reduce benefits from tariff evasion by tariff unification (thus wiping out opportunities for tariff evasion within industrial commodity groups by levying the same tariff rates for all goods included in them). It could be expected that the first option will be preferred by producers interested in raising prices of legal imports, while the second option will be advocated by consumers who prefer lower import prices. Thus, the analysis of behavioral strategies of the agents under consideration can through the light on alternative reform strategies as affected by the respective transaction costs.

As my interest in applied institutional analysis was induced by the development of my political economy studies, my skills in it still need a perfection. In fact, they are principally drawn from the literature and co-operation with my Russian colleagues (some of them have already participated in workshops organized by the Ronald Coase Institute and ISNIE). I expect that my participation in the Ronald Coase Institute Workshop in Institutional Economics will allow me to upgrade my knowledge in institutional analysis and use it in my recent project as well as in my future work on policy reforms in transition economies.

If the Organizing committee finds my candidature suitable for the Workshop, I would be happy to visit also the Global Development Network Conference, as my participation in two previous GDN Conferences contributed much to my professional expertise, and I expect the same result of the recent Conference.

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where D_t - is a dummy indicating whether the respondent use some additional methods to reduce a pollution exposure or has willingness to pay for better environmental quality during the period t, Х -  is a vector of individual characteristics (gender, schooling, suffering from a chronic/ frequent illness, and age) and dummies, indicating a region and a type of inhabited locality, and a local level of public utilities provision; Q is an indicator of pollution, M is a real household income per capita, α is an intercept; e is an error term.


ABSTRACT (Untitled)
José María Ferreira Jardim da Silveira
University of Campinas, Brazil

I. Main Interest Area: Asset Distribution, Inequality and Governance Structure:
Our research is focused on the relationship between different land policies interventions and alternative criteria to assess its welfare effects.  Our studies focus on examples of policies whose rationale takes into account market failure problems.  It suggests policy mechanisms that may lead to some welfare gains, without necessarily leading to Pareto optimum welfare position.. It takes the Cedula da Terra Program as a complex set of interrelated governance mechanisms, composed by the following steps: self selection processes of beneficiaries, arbitrated land acquisition, (partial) cooperative decisions of productive allocation and the creation of rules of distribution of the results amongst stakeholders. The results of our research show how important is the coordination process to create a better governance structure amongst the feasible ones and to improve welfare conditions of beneficiaries.

II. Public Research evaluation and Biotechnology: mechanisms of governance, biosafety and property rights.
Biotechnology has been defined as a robust block of knowledge which combines already existing research protocols with new scientific procedures derived from different disciplines such as biochemistry and molecular biology.  This description of biotechnology holds a great potential for new combinations with other existing building blocks, such as the ones representing computer sciences.  In fact, the information-based genetic approach becomes the core of a wide range of more complex scientific and technological blocks of knowledge.  It involves a complex network of agents and institutions, part of them, public institutions, whose features had been radically changing in the last ten years.  Up to this point, the main questions presented for our research can be described as:
a) the new competitive profile which will emerge from the alliances between the large pharmaceutical companies, the specialized firms, the universities' research groups and governments;
b) the continuation of the process of taking money for funding from financial markets, a very risky strategy adopted by most American specialized companies - particularly the new biotech companies - during the last fifteen years;
c) the new intellectual property rights and other forms of protection that will emerge from the discussions about regulating trade in genetically modified organisms and from the debate concerning the monopoly of cloning techniques that are supposed to copy and to scale up the fundamental natural processes of life.

To sum up, we are trying to develop an analysis of recent biotechnology evolution and the main Brazilian features related to the developing of a the expertise in biotechnology fields, mostly in agriculture. It is closely related to the definition of Property Rights in the scope of TRIPS and biosafety issues.

After this, we analyze the opportunities opened by the "Real plan"(the control of inflationary process), in terms of the new institutional environment to venture capital. We stress the nature of the recent biotechnology programs in Brazil, focused in long term results, as a main obstacle to develop new forms of finance biotechnology.


Regulation and Informal Markets:
When Food Safety Concern Decreases Safety
Paulo Furquim de Azevedo
University of São Carlos, Brazil

The literature of informal markets generally assumes that the main benefit of being informal is tax evasion (LOAYZA, N. V., 1996) (TRANDEL, G & SNOW, A, 1999). However, in some sectors, the costs incurred in order to attend regulation standards are the dominant variable that induces firms to operate in an underground market. This ongoing research aims to evaluate the effect of food safety regulation on the level of informality in the Brazilian meat market.

Approximately 40% of Brazilian meat originates from informal slaughtering, what constitutes a major problem of food safety. The illegality derives from two sufficient conditions - a) lack of sanitary inspection or b) fiscal evasion - that generally are met simultaneously.  There is, as a consequence, a subsystem for the production of meat - defined by the transgression of formal rules - that function in an entire different way. It uses governance structures also distinct, given the impossibility of using contracts based in verifiable information (that can be used by courts).

In order to compare different sanitary norms, each one is analyzed in two dimensions: a) enforceability and b) required quality standards. Both dimensions interact to determine a) the costs and benefits of informality and, hence, the level of informality; and b) the food safety level in the formal market. A qualitative survey indicates also that other variables, such as income, asymmetric information in consumption and distribution channels are also important to explain the level of informality. The main hypothesis states that there is an over-regulation in terms of quality standards, without appropriate enforcement conditions.

Preliminary results suggest that sanitary norms (n. 304 and 145), launched in 1996 and 1999 respectively, had a positive effect on the level of informality, what contributed to a decrease in the actual food safety.


THE MEASUREMENT OF TRANSACTIONS COSTS
Christian Eigen-Zucchi
George Mason University, USA

Factors that have come under the general heading of transactions costs have long been recognized as central determinants of economic outcomes, but progress on actual measurement has been sparse.  Important research has endeavored to measure the size of the transactions sector and has generated fascinating ad hoc comparisons of transactions prices.  This dissertation builds on these efforts by developing a general indicator of transactions prices, the “transactions price index” (TPI), which emphasizes price, incorporates a broad array of transactions services, and provides a metric for a large sample of countries.  After arguing that transactions ought to be considered normal goods or intermediate inputs with standard demand and supply schedules, the dissertation identifies 12 elements pertaining to the price of transactions, and compiles these into a summary index that is a plausible indicator of transactions prices for 88 countries.  Combined with previous empirical estimates of transactions expenditure, the TPI provides strong evidence that the transactions sector is an engine of growth, promoting specialization and economic dynamism.  A first application of the TPI in international growth regressions shows that countries with lower transactions costs tend to have better economic performance than countries where the price of transactions is higher.


Evaluating the Impact of School Decentralization on Education Quality
Sebastián Galiani, Universidad de San Andrés, Argentina
Ernesto Schargrodsky, Universidad Torcuato Di Tella, Argentina

An important piece of the major fiscal and structural reforms undertaken in Argentina in the early 1990's was the decentralization of education services from the federal government to the provincial governments. The theoretical literature does not find absolute superiority of centralization or decentralization in the provision of public services.  We evaluate empirically the effect of the decentralization of secondary schools in Argentina on education quality. Our results suggest that, on average, decentralization improved the performance of public school students in test scores.  We also explore whether the effect of decentralization depends on province characteristics. We find that the effect is positive when schools are transferred to fiscally ordered provinces, but negative when provinces run significant fiscal deficits.

JEL: H40, H52, H70, I20

Keywords: Decentralization, evaluation, education quality.