Do institutions Matter Some evidence on property rights

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Do institutions Matter? Some evidence on
property rights

• Esther Duflo

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Do institutions matter?

• Institutions rules of the game (Kreps)
  distribution of economic and political power in
  societies constraints (North)
• Are developing countries poor because they are
  not in the right place or/and because they have
  poor institutions (geography or politics)
• Good economic policy might compensate for bad
  endowment, so there is a strong view that the
  institutions must matter
• Large and growing literature which correlates
  institutional measures and economic performance
  North and Thomas (1973), Knack and Keefer (1995),
  La Porta et al (1998, 2000)

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Endogeizing institutions

• Ethno-linguistic fragmentation as proxy for poor
  institutions - increases transaction costs, and
  hence leads to worse institutions(Mauro)
• Hall and Jones' (geography) variables distance
  from equator and fraction of population speaking
  English (social infrastructure) - proxy for good
  institutions
• Concerns? What is the necessary exclusion
  restriction?
• History Engerman and Sokoloff (1997, 1998)
• Acemoglu, Johnson and Robinson (2001-2002)

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Acemoglu-Johnson-Robinson

• Different types of colonization policies led to
  different types of institutions e.g. Belgians
  created extractive organizations while British in
  the new world' settled
• Choice of policy driven by feasibility of
  settling if disease environment not feasible
  for settling set up extractive institutions
• Colonial state and institutions persisted after
  independence
• Hence, disease yesterday predicts institutions
  today, does it also predicts development?
• Use settlers mortality as an instrument for
  property rights in a regression where property
  rights predict GDP

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Interpretation

• Do we believe in the instrument?
• Density (AJR 2).
• Modern disease environment (Sachs)
• Human capital (Glaeser et. al)
• French restaurants?
• What is it an instrument for?
• AJR instrument used for about everything under
  the sun by various papers (DO NOT DO THAT !!!)
• It is used in the original paper for property
  rights, which is itself a bundle. How this
  bundle is chosen will have consequences for the
  results of the IV, especially if one institution
  comes as the cost of another (Pande-Udry)
• More generally the macro evidence on
  institutions is plagued by using very bad data
  (Glaeser et al. Pande-Udry).
• Solution Focus on specific institutions, in
  specific countries, and trace the effect of
  those.

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Banerjee-Iyer

• Land tenure systems arrangements for the
  collection of land revenue defined who had the
  liability to pay the land tax to the British and
  by implication who had property rights.
  Important determinant of asset distribution and
  contracting environment in agriculture.
• Land revenue was more than 60 of total British
  government revenue in 1840. The choice of land
  tenure system was the subject of considerable
  policy debate.
• They compare the impact of different land tenure
  systems on agricultural productivity and other
  outcomes .
• These systems were formally abolished in the
  early 1950s. We thus look at pure institutional
  overhang effects.

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Growth of the British Empire in India

• 1757 Battle of Plassey and political control of
  Bengal
• 1792-1801 Conquests in Madras Presidency
• 1801-1818 Conquest of Bombay Presidency, Central
  Provinces and North-Western Provinces
• 1820s Orissa and Assam conquered
• 1846, 1849 Sikh Wars and conquest of Punjab
• 1856 Annexation of Oudh
• 1857 Sepoy Mutiny
• 1858 British Crown takes over administration no
  further conquests
• 1947 End of British rule Indian empire
  partitioned into India and Pakistan.

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Pre-British and British land revenue systems

• Mughal system (16th and 17th century) revenue
  collector was a transferable state official
  revenue rights non-hereditary
• British land tenure systems set up during
  1765-1865
• Three major types of British systems
• Landlord-based (zamindari, malguzari) Property
  rights given to big or small landlords 1793
  Permanent Settlement in some areas makes revenue
  payments fixed.
• Individual-based (raiyatwari) Property rights
  given to cultivators detailed survey and record
  of rights maintained
• Village-based (mahalwari) Property rights given
  to village bodies with joint ownership. Depending
  on size of village body, could resemble
  landlord-based or individual-based systems.

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Choice of land tenure system

• Influence of individual administrators
• Munro supports raiyatwari in Madras (1812)
• Elphinstone implements raiyatwari in Bombay
  (1820s)
• Mackenzie recognizes village bodies in North-West
  Provinces (1819)
• Ideology prevalent in England Anti-Jacobinism,
  Utilitarianism. (Stokes 1978)
• Beliefs about local tradition or presence of an
  existing landlord class (e.g. Bengal). No
  consensus about the original system of India.
• Date of land revenue control areas conquered
  later were more likely to get non-landlord
  systems due to growth of infrastructure, changes
  in ideology and precedents set in other places
• Political events landlords in Oudh were
  reinstated after the 1857 revolt, despite the
  initial plan of a village-based system

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Data

• District-level annual data on agricultural
  investments and productivity 1956-87
• Historical land systems and extent of landlord
  control Land Settlement Reports (1870s, 1880s),
  historical accounts
• Current districts are matched up to old districts
  using old and new maps district boundaries have
  changed much less than state boundaries which
  were reorganized in 1956
• Drop districts which are currently in Pakistan or
  Bangladesh and those which were under
  administrative control of Indian rulers.

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Empirical strategy

• OLS regressions
• Yit constant ?t ? NLi Xit? ?it
• Yit outcome in district i and year t
• -- Agricultural investments irrigation,
  fertilizer use, adoption of high-yielding
  varieties (HYV)
• -- Agricultural productivity yield per hectare
• -- Investments in human capital
• NLi measure of non-landlord control (proportion
  of district not controlled by landlords)
• Xit control variables (geography, date of
  British land revenue control)

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Endogeneity concerns

• Choice of land revenue system often determined by
  political factors
• Landlord areas have better geographical
  characteristics e.g. greater rainfall and topsoil
  depth
• Some areas were converted from a landlord system
  to non-landlord these were usually less
  productive areas where the landlord could not
  meet the revenue commitments
• Landlord areas were more productive in the
  Colonial period.
• Use only neighboring districts which happened to
  have different land tenure systems
• Construct instrumental variable estimates

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Instrumental variable estimates

• Instrument dummy for whether the British took
  over revenue control between 1820 and 1856
• Date of revenue control date of conquest for
  most places
• Why is this a good instrument?
• Administrative considerations favor landlord
  systems in areas conquered earlier.
• Non-landlord systems established in Madras and
  NWP starting from 1820, forming precedents.
• Change in Oudh policy after revolt of 1857
• Control linearly for the direct effect of a
  longer period of British control over land
  revenue.

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Why do landlord areas fall behind?

• Differences widen in the mid-1960s when new
  agricultural technologies are introduced.

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Why do landlord areas fall behind?

• Differences widen in the mid-1960s when new
  agricultural technologies are introduced.
• Inequality
• Landlord areas had higher land and wealth
  inequality in the colonial period.
• Inequality has declined more in landlord areas in
  the post-Independence period.
• State policies
• States with more landlord areas have enacted more
  land reforms.
• States with more landlord areas have
  significantly lower development expenditure.
• Poverty reduction is lower in states with more
  landlord areas.

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Specific Example Dams

• Few economic policies are Pareto-Improving lots
  create winners and losers.
• Institutions help setting the rules of the games
  for winners to compensate losers.
• It may be important since, otherwise, productive
  investments may not take place. On the contrary,
  non productive investment may take place if the
  winners are enough of a constituency.
• Generally totally ignored in the cost-benefit
  analysis.

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Duflo-Pande Dams (2005)

• Dams have well identified, technological
  winners/losers
• Winners are donwstream
• Losers are upstream and in catchment areas.
• Easy to identify for the econometrician, and easy
  to identify for the policy maker!
• In practice, econometrician is at a disadvantage
  we have dams district and district downstream
  from it. May mix up some winners with some losers
• It remains true that there should be more losers
  in own districts and more winners downstream
• This can be confirmed when we look at
  agricultural outcomes they improve downstream,
  no in own district (where variance increases)

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Are the losers compensated?

• Policy context for compensation
• Official policy based on ownership of land. Those
  whose wages go down are not compensated.
• Impacts of dams on poverty, consumption, risk
• Own district, poverty increases.
• Downstream, it declines
• Robust to instrumenting using geographic
  suitability of a district for a dam (river course
  follows a gentle slope).
• Own district poverty is MORE sensitive to
  rainfal, downstream less

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Are the losers compensated?

• Policy context for compensation
• Official policy based on ownership of land. Those
  whose wages go down are not compensated.
• Impacts of dams on poverty, consumption, risk
• Own district, poverty increases.
• Downstream, it declines
• Robust to instrumenting using geographic
  suitability of a district for a dam (river course
  follows a gentle slope).
• Own district poverty is MORE sensitive to
  rainfal, downstream less
• Interaction with institutions
• Negative effects diminished in half in
  non-landlord districts.
• Positive effect not diminisedh in non-landlord
  districts

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Other interesting examples

• Pandey Show the Banerjee-Iyer results holds
  within UP, for villages on both sides of the
  boundary
• Iyer Effect of direct vs indirect british rule
• Goldstein- Udry effect of property rights on
  investment exploit individual variations in
  property rights
• Duflo-Udry effects of social norms on use of
  different crops proceeds
• Di Tella-Galiani-Schargrodski property rights
  affect peoples political views (Argentinas
  experiment)
• Hornbeck Enforcement of an institution (barbed
  wire)

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Hornbeck Barbed wire

• 19th century American south fencing property was
  essential to
• Physically protect ones crop from other people
  cattle
• Legally claim compensation in case of Damage
• Before the invention of Barbed wire, fence were
  made of wood they were very expensive in places
  which did not have much woodland.
• Barbed wire was invented in 1874 and universally
  adopted in 1880-1890.
• Compared to counties with woodland, land use,
  land improvement, productivity, all increase
  substantially faster in counties w/o woodland in
  1880-1900 than before or after.

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Empirical Strategy

• Spirit is similar to a DD strategy did areas
  with more woodland grew comparably faster in the
  period before barbed wires than after.
• Specification which fully exploits datas
  richness
• Yct Yct-1astSt (b1t Wcb2t W2c b3t W3c b4t
  W4c) uct
• Then we can use those coefficients to predict the
  changes at specific value of the woodland
  variable.

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Summary of results

• Increase in land use, land improvement,
  productivity.
• Comparison with legal reform to try to give more
  property rights to farmers the legal reforms
  failed.
• Enforcement of property right was essential.

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Goldstein and Udry

• First table same specification as a previous
  classical paper from Udry controlling for land
  quality, productivity on womens controlled plot
  is lower than that of male controlled plot WITHIN
  THE SAME HOUSEHOLD.

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Productivity and fallowing

• Sign of a lack of efficiency in the household.
• First paper stopped there
• This paper relates the lack of efficiency
  specifically to the lack of fallowing (letting
  the land rest in between crops).
• Story if the land is left to fallow, it can be
  appropriated by someone.
• Those with powerful political positions in the
  lineage or the village have more secure property
  rights, and they are more likely to let the land
  fallow
• Women have the least secure property rights and
  they are therefore less likely to leave the land
  fallow.

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