Pranab Bardhan

Decentralization of Governance and Development

In this paper we note that the institutional context (and therefore the structure of incentives and organization) in developing and transition economies is quite different from those in advanced industrial economies, and this necessitates the literature on decentralization in the context of development to go beyond the traditional fiscal federalism literature. We review some of the existing theoretical work and empirical case studies of decentralization from the point of view of delivery of public services and of conditions for local business development, and point to ways of going forward in research.

The Economic Theory of Agrarian Institutions

This volume breaks new ground in the economic theory of institutions. The contributors show how some of the tools of advanced economic theory can usefully contribute to an understanding of how institutions operate. They show how sound theoretical analysis can in fact enable economists to reach conclusions which will help practitioners avoid many pitfalls in the formation and implementation of development policies, both within individual countries and in the context of international aid.

Decentralisation and Accountability in Infrastructure Delivery in Developing Countries

Many developing countries are experimenting with decentralisation of public service delivery to elected local governments instead of bureaucrats appointed by a central government. We study the resulting implications in a theoretical model in which the central government is uninformed about local need and unable to monitor service allocations. Bureaucrats charge bribes for services as monopoly providers, resulting in underprovision of services, especially for the poor. Local governments are directly responsive to their citizens needs but may be subject to capture by elites. Effects of decentralisation on service volumes, efficiency and equity are analysed under different financing arrangements for local governments.

Size, Productivity, and Returns to Scale: An Analysis of Farm-Level Data in Indian Agriculture

The paper uses individual farm-level data for nearly 1,000 Indian farms to analyze (a) the well-known inverse relationship between farm size and output per acre, (b) returns to scale, and (c) imperfections in the labor market. One major result is that while predominantly wheat areas show constant returns to scale, diminishing returns seem to prevail in predominantly paddy areas. But both in paddy and wheat agriculture the observed negative relation between output per acre and farm size is likely to be the result more of an inverse relation between size and other inputs than of scale diseconomies. In the last section of the paper we discuss factors that may have contributed to this inverse relation, some of these involving production uncertainty in agriculture and some others involving the interlinked phenomenon of land- and labor-market imperfections.

Analytics of the institutions of informal cooperation in rural development

Abstract Local community-level water management is crucial for rural development in the poorest parts of the world, in South Asia and sub-Saharan Africa. Local cooperative institutions have been successful in water management in some cases, but there are numerous cases of failure. The paper draws upon the relevant lessons from the theoretical literature on cooperation in game theory, both in economics and evolutionary biology. Then it goes into the evidence from field studies by anthropologists and others on the conditions for success or failure of local cooperation. This points to some additional insights which the theoretical models are yet too constricted to incorporate.

The new institutional economics and development theory: A brief critical assessment

Abstract In this paper we discuss strengths and weaknesses of transaction-cost and imperfect-information approaches to the economic theory of institutions, particularly with reference to problems relevant to economic development.

Inequality and Conservation on the Local Commons: A Theoretical Exercise

To analyze the effect of asset inequality on cooperation within a group, we consider a two-player noncooperative model of conservation of a common-pool resource (CPR): a fishery. We give necessary and sufficient conditions such that conservation is a Nash equilibrium, and we show that increasing inequality does not, in general, favor full conservation. However, once inequality is sufficiently great, further inequality may push the players closer to efficiency. Thus the relationship between inequality and economic efficiency is U-shaped. We analyze the implications for conservation if players have earning opportunities outside the commons. Finally, we consider various schemes of community regulation of the commons in the light of the noncooperative model with or without exit options. We find that increases in inequality may restrict the range of implementable mechanisms.

Credit markets and patterns of international trade

Abstract Even with identical technology or endowments between countries comparative costs may differ in a world of credit market imperfection. We have explored two kinds of such imperfection, one involving moral hazard considerations in the international credit market under sovereign risk and the other involving differences between countries in their domestic institutions of credit contract enforcement under incomplete information.

Wages and Unemployment in a Poor Agrarian Economy: A Theoretical and Empirical Analysis

In much of the theoretical literature on development the standard assumption is that of a constant wage in agriculture. In this paper we cite some evidence, obtained in our detailed analysis of a recent large-scale survey of rural labor households by the National Sample Survey in India, of how the existing theories of wage determination by biological or institutional factors leave much to be explained in terms of the observed data. We then proceed to construct a modified theoretical framework which generate comparative-static hypotheses which seem to be consistent with many of the stylized facts.

Labor-tying in a Poor Agrarian Economy: A Theoretical and Empirical Analysis

In this paper we show how tied labor, contrary to its common characterization as a feudal relic and as a symptom of economic stagnation, may actually be strengthened by capitalist agricultural development. We construct a simple two-period theoretical model of a two-tiered labor market to show how the proportional importance of voluntary labor-tying contracts may increase with yield-increasing improvements and with a tightening of the labor market. We then provide in support of these hypotheses some general historical as well as more detailed econometric evidence from a variety of cross-sectional data in rural India.