Ronald Coase Institute: 2001 Rio Abstracts

2001 Rio Workshop: Abstracts

WORKSHOP ON INSTITUTIONAL ANALYSIS
DECEMBER 13–14, 2001
RIO DE JANEIRO, BRAZIL

ABSTRACTS

Compliance Cost Reduction and Enterprise Compliance: A Comparison of Institutional and Efficiency Analysis Perspectives
and
Efficiency Paper
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.

Analysis of Changes in Russian Household’s Willingness to Pay for the Environment Quality Improvement
Inna Y. BLAM
Institute of Economics and Industrial Engineering, Russia

The importance of the proposed research project is associated with the problem of the information base supporting current resource and environmental management decisions in Russia.

The analysis of changes in the Russian households' averting behavior and willingness to pay for better environmental quality includes the following research tasks:

· evaluation of the impact of the environmental pollution decline on individual opinion about environmental quality;

· study of changes in households’ averting behavior and willingness to pay for better environmental quality in response to environmental improvements caused by economic crisis in Russia;

· examining the effect of households' real money incomes on their averting behavior and willingness to pay for better drinking water and air quality;

· and eliciting and analysis of individual characteristics that influence households’ averting behavior and willingness to pay for better drinking water and air quality.

To formulate hypotheses and to select proper independent variables we use a very standard model of individual decisions concerning defensive activities and willingness to pay for better environmental quality (the model is fully presented, for instance, in Freeman, A. Myrick, III (1993), or in Cropper, Maureen L. and Wallace E. Oates (1992).

The data examined in this study come from two sources. The principal one is the Russian Longitudinal Monitoring Survey (RLMS), household panel survey (1994-1996, 1998-2000) based on the first national probability sample drawn in the Russian Federation. RLMS contains some information about individual evaluation of environmental changes, averting behavior, and willingness to pay for less pollution and data on age, gender, incomes, health, education and dwelling place of respondents. We use in our study also data of the State Reports on the Environment Quality in Russia and the Russian State Committee of Statistics (Goskomstat).

The effect of independent variables on the probability of respondent’s willingness to pay for improved environmental benefits will be estimated on the basis of the logistic regression model and probit-model using the standard method of maximum likelihood.

The econometric models to estimate the incidence of households’ averting behavior or willingness to pay for better environmental quality are established by the probit equations: , 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.

Asset Distribution Inequality in Governance Structure; Public Research Evaluation and Biotechnology
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.

The Political Economy of Economic Reforms in Argentina
Andrés Alberto GALLO
University of Illinois at Urbana-Champaign, USA

I am working with Professor Lee Alston on the political economy of economic reforms in Argentina. The Argentine case is particularly important because the country was developing at a fast rate at the beginning of the 20th century, comparable to the development of Australia and Canada. However, political changes, in particular the rise of Peronism, altered the institutional design of the economy and resulted in economic decline. The literature on this topic is vast but most studies have concentrated on political or economic explanations for Peronism without an analysis of the political economy of the process and the institutional changes that proceeded and ultimately account for the rise of Peronism. Currently, we are working on the political economy of the economic reforms introduced by Peron during the 40s. We concentrate specifically on the political and institutional changes that favored them. We stress the importance of the military coup in 1930 and the later fraud perpetrated by the conservative parties in the Pampas. These factors provided the impetus for Peron to come to power and account for the punitive policies aimed at farmers in the Pampas. The policies of Peron against landowners represented a “taking” under the constitution of Argentina. So we asked the question: where was the Supreme Court as a protector of property rights. The answer was that Peron, along with an elected Congress impeached the Supreme Court justices. The justification for impeachment was the implicit sanctioning of electoral fraud in the 1930s. With that impeachment Argentina was set on a different institutional trajectory, typified by considerable economic and political instability. The instability is in part due to the lack of an objective Supreme Court to serve as an institutional safeguard. Since Peron, almost every government changed the composition of the Court in order to obtain a supportive majority.

Summarizing, our work offers a political economy explanation for institutional changes that altered the development path of Argentina. Understanding these changes will help to understand better the institutions needed to foster economic development. Argentina is a unique case, because it went from one of the world’s leading economies in the 1920s and 1930s to a middle income country today. A political economy explanation for these policies is highly relevant nowadays, when the country is still immersed in a political crisis as a direct consequence of the reforms introduced during the Peron years. In particular, we stress the political factors behind a turnaround from a market and democracy-friendly system -like those of developed countries- to a more discretional and populist one with consequences still visible five decades later.

Changing Brazilian Corporate Governance Paradigm:
Evaluating the Incentives to the Development of Brazilian Capital Markets
Érica Cristina Rocha GORGA
University of São Paulo, Brazil

Problem

Brazilian capital markets are too weak to provide desirable finance to the firms. Brazilian corporate structure is characterized by concentrated ownership, nevertheless this structure is many times inefficient. Many Brazilian open corporations have been recently changing their structures into close corporations.

Main Points

Brazilian Corporate Law increases transaction costs in the capital markets hindering its development. Stockholders have incentives to hold a large number of stocks because there are large benefits of control (Bebchuk 1999). Inefficient decisions are taken by the owners because of the amenity potential (Demsetz and Lehn 1983). Different hypothesis than the usual one in the literature of agency: there are agency problems between controlling shareholders and minority shareholders (not between the management and the shareholders). This occurs because controlling shareholders have incentives to reduce return to minority shareholders.

Question: how can the public market compete with a potential controlling block holder by paying the initial owners of the firm a premium equal to, or greater than, that which the potential controlling block holder would pay? (Coffee 2001)

Objectives

To understand better the institutions that shape Brazilian corporate governance structure. To discuss what are the feasible institutional improvements in Brazilian corporate governance mechanisms. To discuss economic impacts of incentives and to examine what are the institutions that may play the role of capital market augmenting institutions (Olson)

Methodology

Available data

Case study: Firms are inclined to close their ownership structures due to recent changes in public regulation which have increased transaction costs.

Comparison of prices paid for voting and non voting stocks in the exchanges.

Measure of the capital return for controlling stockholders and minority stockholders (the latter usually have different classes of stocks from the former)

Evaluating how investor protection could provide better prices for securities in the markets.

Expected Results and Conclusions

Discussion of the changes that could diminish transaction costs.

Discussing how to reduce private benefits of control and how to create incentives that can enhance corporate performance.

Importance of minority stockholder protections (La Porta et al).

Importance of the exchanges and informal institutions (as substitutes of public regulation) to provide investor protections.

Microinstitutional Changes in the Bulk Stockpiling Sector in Brazil Stemming From Institutional Change
Carolina Torres GRAÇA
University of São Paulo, Brazil

The problem:

On May 29, 2000, law 9973 was passed in Brazil that would provide specific rules for the stockpiling of agricultural products. Prior to that date, each and every stockpiling activity (including also agricultural and husbandry products) was governed by a law passed in 1903. This change became necessary because the institutional environment did not allow the sector to perform efficiently. First, due to the impossibility of the stockpiler to also perform the role of product seller, the operational margins were very low, leading to under-investment, depreciation of the installed capacity, and dependence on the government’s incentive policies. The second problem related to the previous law was the absence of commitment from the company’s owner to provide service as a faithful trustee, that is, the entrepreneur was not liable for thefts and deterioration of the merchandise. Thus, problems of this nature occurred very frequently. The new law allows the stockpiler to commercialize products, as well as committing the stockpiler to indemnifying the owner of the merchandise for negligence in the exercise of the activity. The institutional change brings with it other advances such as the need for certification of the silos prior to initiating their activities, allowing free negotiation of the value of the service provided, among others.

Within this context of institutional change, the research problem is to identify the micro-institutional changes in the sector of bulk stockpiling motivated by the alteration in the institutional environment. An initial modification addresses the efficient forms of governance structures. The forms in effect are: coordination via contracts and vertical integration. The first form is employed by service providers, which can be private firms or state-owned, the latter having lost market share. The coordination via integration can be downs stream, when the farmer has a stockpiling structure on the property, or up stream, when the agro industry occupies itself with the activity of maintaining its raw materials. Within a more solid institutional environment, given that the stockpiling activity has gains of scale and there is the possibility of expanding the value of the services provided by specialized agents (credit distribution and supply of logistical solutions), it is expected that there be changes in the profile of the governance structure in effect in the sector. A second repercussion of the new law is the modification in the amplitude of the contracts.

Methodology:

The institutional change, according to the New Institutional Economics and Transaction Cost Economics, can be viewed from two perspectives. At the level of the institutional environment, the new law can mean a reduction in the transaction costs since the contractual gaps are filled by clear rules and adjusted to reality. However, there are forces that influence the full application of the law, therefore it becomes necessary to analyze the enforcement potential of the new law so that it serves, indeed, to reduce the costs of making the market work. At the level of institutional arrangement, law 9973 has repercussions on the organizational arrangements of the firms related to the activity of stockpiling. For purposes of delimiting the problem, the line of thought employed in the present study is the analysis of the micro-institutional changes with repercussions on the firm’s limits of efficiency and new contractual designs.

Sources of data:

The National Supply Company (CONAB), an organ that is linked to the Ministry of Agriculture, maintains a register of innumerable data referring to the activity of stockpiling in Brazil, among them a file of cases in which there are lawsuits between demanders and suppliers of services of this nature and which were investigated by public organs. Through these registers, it is possible to learn the causes of conflicts and the cost that they represent to the chain (measured over the time it took to resolve the impasse). Contrasting the cases before and after the new law, it is expected that changes will be discovered, such as modification and/or appearance of new sources of disputes and changes in the time it takes to resolve these problems, in addition to the emergence of new contractual forms. As to the modifications in the dominant governance structures, the information will be obtained at the Board of Trade, an organ that registers the opening of new firms and changes in ownership, in order to learn what agent is investing in the activity.

Expected results:

Once an in-depth study guided by TCE and NIE is done on the effects of the law that rules stockpiling of agricultural products, the hypotheses will be compared to the empirical data. Through this result, it is possible to assess to what degree the new law is efficient and allows gains for the chain. The study serves likewise to uncover the causes linked to situations of inefficiency, possibly enforcement, ambiguities, inadequate monitoring, and sluggishness in the resolution of conflicts, among others. Therefore, the theme is relevant to the government as the regulating agent of the transactions, and to the formulation of private strategies for the stockpiling agents and the demanders of the stockpiling services.

Social Capital and Regional Growth: Rio Grande do Sul (Brazil)
Leonardo Monteiro MONASTERIO
University of Pelotas, Brazil

My research project focuses on the regional trajectory of Rio Grande do Sul's (RGS) development. My hypothesis is that institutional issues can explain the divergence in economic growth between the north and south regions of that Brazilian state.

Following Putnam (1993, 2000) it seems that activities that shaped the southern society during the XIX century did not promote the accumulation of modes of social capital that induce a more dynamic long-run performance. Slavery at the “charqueadas” (dry beef production) and extensive cattle-raising century restrained the formation of linking and bridging social capital. Historical evidence suggests that there was some cooperation among Afro-American workers and among slave owners, i.e. bonding social capital, but not much cooperation between classes.

In addition, I examine the role of distributive coalitions in the economic stagnation of the southern half (Olson, 1965, 1982). Exploratory conditional convergence tests suggest that the endowment of Olson-groups and Putnam-Groups (Knack and Keefer, 1997) are relevant to explain the differences on the growth of output per capita among the regions of Rio Grande do Sul. Currently, I am working on the development of better proxies for social capital and distributive coalitions.

Dynamic Analysis of Vertical Coordination: Contractual Arrangements in the Brazilian Poultry Industry
Antonio Carlos Lima NOGUEIRA
University of São Paulo, Brazil

One of the main results in the transaction cost economics theory is the increasing acceptance of the alignment between transactions characteristics and governance structures, in order to minimize transaction costs. In this sense, the coexistence of different contractual arrangements for vertical coordination in the same industry represents an intriguing question. A dynamic analysis of the contractual arrangement considering institutional and organizational aspects can be useful to understand this kind of situation.

The Brazilian poultry production has been presenting an impressive evolution since years 70, with the industrialization and improved coordination of the whole supply chain. The adoption of quasi-integration contracts between processors and growers in broiler production facilitated technological innovation and production increases, generating productivity gains, consistent price decreasing and substantial increasing in per capita consumption. The adoption of these contracts have started in the State of Santa Catarina, then it have advanced to all South region and is reaching Middle West region, representing more than 95% of the production. However, in the State of São Paulo (South East), there’s a significant participation of independent producers (30%), which contract smaller growers, sell live broiler in spot markets to processors or even integrate downward.

The research problem in this project is what are the differences and determinants factors in the evolution of regional (São Paulo and Santa Catarina) contractual arrangements for vertical coordination in the Brazilian poultry industry.

The methodology involves three steps:

(1) Qualitative analysis: characterization of vertical coordination evolution in both regions, considering of each transaction in terms of asset specificity, uncertainty and frequency, analysis of industrial organization and macro institutional environment, in order to identify possible variables to be used in quantitative analysis.

(2) Data searching: secondary data of the industry and interviews with the agents, considering the variables defined in step 1.

(3) Quantitative analysis: the diffusion of quasi-integration contracts. Aggregate data of São Paulo and Santa Catarina States will be fitted to the logistic growth function P = K/(1 + e ^{- (a + bt)}), where P is the percentage of quasi-integration in the production, K the ceiling value, t the time, b the rate of growth coefficient, and a the constant of integration which positions the curve on the time scale. Using the transaction cost framework, correlation analysis will be made between the parameters found and the results of step (2).

The expected results are: (1) the differences in the diffusion of quasi-integration contracts between São Paulo and Santa Catarina poultry industries; (2) correlation between the logistic curve parameters among regions with some characteristics of the processors and growers.

Transaction Costs of Foreign Capital in Russia
Yana Vladimirovna PSHENITSINA
St. Petersburg State University, Russia

I have been continuing my research in this field for the 3-rd year already, started from “Property Rights”. My diploma was dedicated to “Problems of Transaction Costs of Foreign Capital in Russia”. In this paper I tried using theory that I got at the University show and analyze situation in practice, using the experience that I got working at foreign company as the assistant of Procurement manager (I am still working there), as my job is to minimize transaction costs as much as I could during the whole process of communicating with suppliers here and abroad having “ex ante” and “ex post” costs due to Williamson’s classification, communicating with government representatives like Customs, ministries and so on.

The theme of my thesis is also dedicated to ”Transaction Costs of Foreign Capital in Russia”, I continue my research in this field, as I have a great opportunity to combine both theory and practice paying attention on the main aspects in theory of transaction costs, property rights, contract relations and role of the government. As I can see all transaction costs that company with 100% foreign capital carries in our country. The source of my research is my every day’s work. And in my thesis I want to try to calculate the transaction costs (that carries the company where I work in), by breaking up on parts the structure of transaction costs and calculating those parts that can be expressed in financial form, like for example, expenses of the company on consulting services by government establishments under getting the license on making the certain kinds of activity.

Having some changes in the investment climate in Russia now, when after paying too much attention to financial sector with its speculative character in short-term outlook, foreign capital is trying now to turn its view on industrial sector of Russian economy in long-term outlook, our task isn’t only to attract it to this sector, but also to create acceptable conditions for its long-term existence and operation, as unfortunately this is one of the main problems nowadays.

· Our economy is full of bureaucracy that includes passing through large amount of government establishments in order to get the permission or license that allows to do something;

Difficult customs procedure;

Problem of taxation;

Lack of effective law regulation of conscientious competition;

Fuzziness of property rights and incapacity of the government to specify them;

Personification of economy and so on.

We need to solve all these problems as we need the presence of the foreign capital in our country not only because it brings resources to different spheres of our economy, but also creates new work places, increasing employment and stabilizing income of substantial part of the society of the country-receptionist, renews the revenues of our budget, paying taxes in full dimension, and the main thing is that it can show and teach us a lot in business, like to have the same kind of transparency in accounts, for example.

Our aim now is to find the ways out from high transaction costs that prevent not only our economy to breath and be in progress ,but the whole world, too.

Citizens’ Action for Protecting the Environment in Developing Countries: An Economic Analysis of the Outcome With Empirical Cases From India
Velappan SANTHAKUMAR
Centre for Development Studies, India

The project analyses the impact or outcome of actions, such as filing suits, or of civil disobedience such as illegally blocking transportation, for protecting environment in developing countries. It is well known that such citizens’ actions play an important role in countries such as India where public enforcement of environmental regulation is very weak. It starts with a theoretical analysis of the potential outcomes of citizens’ actions in the context of the institutional weaknesses of these countries. For example, the long delay in getting conflicts resolved through courts, can be shown to favor existing polluters, and work against new firms, projects or activities. Monetary compensation for pollution, which is lower than the socially optimal level, may not be reliable due to the possibility of a third party bringing the polluter to the court, and this factor combined with laxity in public enforcement of standards, can encourage the citizens to work for zero-level of pollution with regard to a new firm, if citizens’ actions are not very costly.

The project also analyses the impact of actions of civil disobedience, which are less costly in developing countries due to the poor law and order enforcement, and low opportunity cost of labor, and which may impose high cost on the party to which such actions are directed. The analysis with simple game structures depicting the interaction between citizens and a new firm, and an existing firm, show that socially efficient outcome need not take place. The combined effect of court delays and actions of civil disobedience is to make the starting of a new firm less likely. On the other hand, the delay causes the persistence of existing pollution, and the impact of civil disobedience depends on whether it can impose high cost on the polluter. The theoretical insights are then verified with cases of citizens’ actions from the Indian state of Kerala. The empirical analysis shows that such actions led to the abandonment of new firms, and the continuation of pollution or environmental degradation in a majority of existing firms. It can be shown that both the abandonment of new firms and the continued pollution by existing firms create social losses. The basic policy insight of the project may be that such citizens’ actions may not compensate for the laxity in environmental enforcement, and thus the need for getting institutions and law and order enforcement right.

An "Analytical Narrative" on the Understanding of Latin America Colonization, in Particular, Brazil
Claudio Djissey SHIKIDA
University of Rio Grande do Sul, Brazil

I am beginning to work on my dissertation and the theme of my research will be, to do an "analytical narrative", in Robert Bates sense to throw light on the understanding of Latin America colonization, in particular, Brazil. I intend to do a history of Portuguese mercantilism and its relationship with Brazilian's colonization, complementing the work of Prof. Ekelund & Tollison about mercantilism. These authors, explicitly, don't model the colonization's aspects of the European mercantilism and their institutions.

Information and Trust over Food Safety Attributes
Eduardo Eugênio SPERS
University of São Paulo, Brazil

For consumers to evaluate effectively the significance of food illness risk the information has to be available on the consequence of consumption prior to purchase. Consumers with different risk preferences rationally choose different combinations of food. In case of food safety consumption we could assume that the purchase decision is related with the perceived severity of a hazard, the perceived differences in the reliability of supplier types and the trust in single supplier to be reliable. Public government seems to be more efficient in generating trust with their information strategy directed to consumers. In the other hand, food manufactures and retailers are better informed about the nature of the products they sell than the individuals consumers and food safety is used as a companies' product differentiation strategies. The paper will try to answer the following questions. How the institutional environment in Brazil are related to the generation of trust over food safety attributes? What is the role played by the Government and the private sector in providing trust and managing consumer information? To answer these questions, initially will be characterized the evolution of the institutional arrangement related to the regulation of the food safety in Brazil. Second, an exploratory research will be done in a specific food chain to evaluate the role of information with different source and structure about food safety attributes and the perception of trust by consumers. Finally, some managing consumer information strategies will be suggested.

Russian Peasant’s Commune: New Institutional Approaches To Explaining Its Stability Before 1930s And Its Fall After
Maxim A. STORCHEVOI
Saint Petersburg State University, Russia

Before the 20th century, Russia was agricultural economy and one of the basic element of this economy was peasant commune — complex social organization of several villages with hundreds of families.

There are different explanations of its appearance and existence. Some historians believe that peasant commune was the remnant of the past. Others believe that peasant commune was not obsolete and was effective but propose different explanations to its efficiency (ideological or religious — common will to live together, value of mutual help, etc.)

But we can look at peasant commune from the position of new institutional economics. The peasant commune may be considered as the rational institutional answer to existing natural economic conditions.

The main thesis here — the peasant commune may be treated as association of free farms which main objective was effective managing and securing of property rights. First of all – property rights for land. Other mechanisms of managing and securing property rights were not possible in the Russia before 20 century. One of the main reason for this was the low productivity of Russian agriculture. The State or other external power (knight, baron, gangsters etc) could not provide this mechanism because peasant economy could not provide them with sufficient reward for this service. Individual farm also could not independently prove and protect its property rights from other individual farm because there were not sufficient resources for this struggle. So peasant commune was the free association of farms aimed at effective allocation of existing land stock between its members and protecting rights of each member by common action.

This is just the first step in analyzing institutional structure of peasant commune. To go further we should use the classification of rules by E. Ostrom to analyze what basic positions or statuses constituted the peasant commune, what basic principles of taking this positions existed, what rules of communication or subordination between these positions dominated, what principles of resource allocation were used and what was the rationale of them.

After this analysis and deeper understanding of Russian peasant economy we can try to answer why during the first twenty years of 20^th century Russian peasants twice beat off authority attempts to change their traditional economic life compulsory: Stolipin Agrarian reform of 1905-06 and Bolshevik’s attempts of mass nationalization of 1918-1920. And why, on the other hand, in 1930-s Russian peasant readily gave up their way of life and turned to collective-farm type of organization which has existed sixty years before the collapse of Soviet union and in a little bit changed form exists at present.

Political Process and Efficient Institutional Change
Yang YAO
China Center for Economic Research, China

Since Davis and North (1971) and North and Thomas (1973), a folklore of the profession termed the “efficiency hypothesis” of institutional change has emerged. It states that institutions change to explore economic gains. A specific variation of this hypothesis is termed the “induced institutional change hypothesis”: “changes in relative prices create incentives to construct more efficient institutions.” (North, 1990, p. 7). Both hypotheses have not been formally proved by any serious theoretical exercise, but are both widely applied. For example, Davis and North (1971) applied the efficiency hypothesis to explain the institutional change in America; North and Thomas (1973) applied the induced institutional change hypothesis to explain the long-term evolutionary path of western Europe’s property right regimes; and Hayami and Kichuchi (1981) and Ruttan and Hayami (1984) applied the same hypothesis to explain the institutional change in developing countries. In many cases of comparative institutional analysis, the efficiency hypothesis is used as a convenient bridge between a less efficient to a more efficient institution.

However, it is interesting to find that several advocates of the two hypotheses have recently changed their attitudes. For example, North (1981) abandoned the efficiency view of institutions because it ignored the political process of the institutional change. Hayami (1997) admitted that the induced institutional change hypothesis was naive, also because it ignored the political process.

The aim of this paper is to make an effort to fill the gap by taking the political process into the consideration of institutional change. Methodologically, it is in line with the programs proposed by Commons (1931) and Hurwicz (1990, 1993). Commons defined institution as a set of collective actions that controls, liberates, and expands individual actions. In accordance, Hurwicz proposed that an institution be modeled as a game form and institutional change be analyzed in the framework of social choice theory. This approach can be contrasted with the individual equilibrium approach advanced by Aoki (2001). The equilibrium approach fails to account for the political process and remains highly normative. By taking the political process into direct consideration, the social choice approach can generate positive results.

In this paper, I will first formalize the efficiency hypothesis in a general economic setting characterized by potential efficient institutional changes. The hypothesis will then be reformulated in the framework of the implementation theory as a social choice correspondence, which I will call the efficiency correspondence (EC) that maps the collection of individual characteristics into the space of feasible social allocations and chooses the set of allocations under which the social gain is maximized. The next major task then is to determine the implementability of EC. The game form that carries out the implementation is comprised of an institution and a political process --- in our case, the majority voting that is commonly adopted in modern democracies. The game form implements EC if the allocation under the institution belongs to the set chosen by EC (i.e., the institution maximizes the social gain) and the political process chooses exactly this institution. I will study (i) the implementability of EC under dominant strategy equilibrium and Nash equilibrium; (ii) the properties of the institution; (iii) several examples of real institutions; and (iv) the implications of the above results to the study of institutional change.

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