Upload
zudora
View
18
Download
1
Embed Size (px)
DESCRIPTION
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 - PowerPoint PPT Presentation
Citation preview
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 4: Incomplete contracts with application to Mexico
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
Actors in a productive organization
• Internal governance of common property forestry– Logic of community– Logic of market
• Today: logic of market• Community as a productive organization:
– Workers– Managers– Decision makers– Stakeholders– The market
Principal – agency theory and organizational design
• Useful concepts:– Measurability of inputs– Asymmetric information– Enforcement and accountability– Separation of ownership and control– Contingencies in production
Principal - Agency Basics
• Hart and Holmstrom (1987). “Theory of Contracts”. Advances in Economic Theory (T. Bewley ed.)
• 2 economic actors:– Principal– Agent
• Agent provides Principal with an input.
• Problem: measurability of the input.
Asymmetric information
• “I know something you do not.”
• Principal: uninformed party
• Agent: informed party whose information is relevant to common welfare
Imperfect signals
• Agent performs task and chooses effort level = t• Personal cost to Agent = C(t)• Benefit to Principal = B(t)• Information generated by t:
x = u(t) + , ~ N(0, 2)
• u(t) is a reliable signal is a random noise• Agent’s compensation is based on x: w(x)
Tradeoff of Risk and Incentives
• Principal usually risk neutral• Agent usually risk averse• Tradeoff:
– Fixed wage: no risk to agent, Principal bears all risk, less incentives for Agent.
– Incentive scheme: more incentives for Agent, Agent bears more risk:
UP = R(x) – w(x), where R = revenue
UA = V(w(x)) – C(t), where V is concave
Moral Hazard
Tendency of imperfectly monitored person to engage in “undesirable behavior” (POV of P)
• A’s objectives aligned differently than P’s• Opportunistic behavior; happens when:
– A takes decision that affects P and A– P observes outcome and outcome is imperfect signal;
A’s utility function is private information– A’s decisions are not Pareto optimal
Productive organizations
• Contractual relations balance interests into an equilibrium– Balance risk sharing and providing incentives– Bring objectives into alignment– Many ways to do this.
• Firm as nexus of contracts among various actors
Decision Monitors:Ratify decisionsMonitor decisions
Decision Managers:Generate proposalsImplement decisions
Residual Risk Bearers:Reap profitTake loss
Actors in Productive Organization
Political-Economic System
Green=community; Yellow=state; Blue=Private
Example: Mexican Stumpage Community
ASAMBLEAGENERAL
SERVICIOS TECNICOS
FORESTALES
JEFE DE MONTE
DOCUMENTADOR
COMISARIADO CONSEJO DEVIGILANCIA
Private firm
SEMARNAT
PROFEPA
Example: German Forestry Management
Mayor/council
Municipality citizens
State Forest Office
State workers
State Managers
Decision Monitors:GAJVAdvisory councilsNGOsSemarnatProfepa
Decision Managers:ForestersCBCGeneral managerJefe de Monte/PatioDocumenter
Risk bearers:Community membersOutside private firms
Mexican Agrarian Communities
Work groups and individual level organization (survey sample)
Durango
N=28
Michoacan
N=13
Work groups 5 (post-92) 1 (pre-92)
Individual 2 (post-92) 8* (7 pre-92; 1 post-92)*needs check
Work groups
• Peter Taylor (2002)
• Frustration and inefficiency of old system
• Takes operational decisions out of GA
• CBC does not manage funds
• “More transparent”
• “Broadens participation”
• “Distributes more fairly”
Monitors:State forestry officeMayor/CouncilForest CouncilMunicipal SupervisionAuditors Certifiers
Managers:Statemunicipal official private managerprivate ranger
Risk bearers:Municipality
German Municipalities
Shared Issues
• Both economic and political organizations combined into one governance system
• Trends: – Germany: moving to more local control– Mexico: enhancing local management
• Challenges for both:– Decision control function– Accessing expertise
Ideas from Agency Theory
• Risk bearing ability
• Internal control
• External control
• Agent signaling
• Agent securities
• “Hard” incentives
• “Soft” incentives
Holmstrom and Milgrom (1991)
• Job design to enhance efficiency
• Based on measurement costs:– Task 1 is measurable– Task 2 is not
• Examples: – Grade school education: basic skill and test
scores v. higher level thinking– Output and care for machines
Holmstrom and Milgrom (1991)
• Can jobs be separated?• If not, pay fixed wage if:
– Too difficult to measure other task– Task competes with agent’s time– Task increases opportunity cost of other task– Example: pay fixed salary/wage to teachers
• With application to Mexico (WAM): Can jobs be separated?– Political v. technical functions
Manne (1965)
• Is there market for managerial control?• Managerial control is a valuable asset.• Can you market it? • Managers lack incentive for corporate
control market• Merger justifications:
1. Bankruptcy2. Economics of scale3. Manne: “Protect shareholders” (risk bearers)
Manne (1965)
• Share price and managerial efficiency positively correlated
• If low takeover potential• Merger is one way to takeover • Overcomes free rider problem among stakeholders• Control premium must be paid• Mergers protect shareholders who do not have a
controlling interest• WAM: Is there a market for control in communities?
– Logic of community v. logic of market
Hirschman (1970)
• Exit: – vote with feet– But where do you go (exit options)?
• Voice: – dissent, complain– But does anyone listen?
• Loyalty: – how fast you leave, how long you stay
Hirschman (1970)
• Examples:– Nigerian railway: exit; no voice– Vietnam War and US officials: no exit, ineffective
voice
• Need to analyze:– Most likely client response– Most likely organizational response
• Need interplay of voice and exit to maintain quality of organization
• WAM
Cooperatives and communities
• Residual claims exchangeable? – If not, control features limited
• Who performs control functions?:– E.g. is board of directors restricted to set of
users? If so, lessens access to diverse expertise
• Lending?
Conclusions
• “Community” in Mexico as a productive organization
• Principal-agent theory as a tool– Tells us about optimal incentives schemes– How develop monitoring and management
roles?
Limitations of Principal-Agent Theory
• Does not inform us about the organizational form which will come about.
• What are boundaries of firm?
• Are contracts complete?
• Role of power and influence
• Misses the social context of property rights