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Institutions and economic research: a case of location externalities on agricultural resource allocation in the Kat River basin, South Africa

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  • Mbatha, C. Nhlanhla
  • Antrobus, G.G.
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    Abstract

    The Physical Externality Model is used to illustrate the potential limitations of blindly adopting formal models for economic investigation and explanation in varied geographical contexts. As argued by institutional economists for the last hundred years the practice limits the value and relevance of most general economic inquiry. This model postulates that the geographical location of farmers along a given watercourse, in which water is diverted individually, leads to structural inefficiencies that negatively affect the whole farming community. These effects are felt more severely at downstream sites and lead to a status quo where upstream farmers possess relative economic and political advantages over their counterparts elsewhere. In the study of the Kat River basin these predictions appear to be true only in as far as they relate to legal and political allocations and use of water resources. In terms of lawful uses of land resources aimed at expanding citrus production, the model’s predictions are not met. The status quo is however fully explained by the implications of having adopted formal water scheduling rights by upstream farmers as well as other geographical factors. Hence, the case for investigating the effects of important institutions within general economic research is strengthened.

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    File URL: http://purl.umn.edu/47657
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    Bibliographic Info

    Article provided by Agricultural Economics Association of South Africa (AEASA) in its journal Agrekon.

    Volume (Year): 47 (2008)
    Issue (Month): 4 (December)
    Pages:

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    Handle: RePEc:ags:agreko:47657

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    Web page: http://www.aeasa.org.za/
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    Keywords: institutions; water allocation; physical externality; Kat River Valley;

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    1. Demsetz, Harold, 1969. "Information and Efficiency: Another Viewpoint," Journal of Law and Economics, University of Chicago Press, vol. 12(1), pages 1-22, April.
    2. Malcolm Rutherford, 2001. "Institutional Economics: Then and Now," Journal of Economic Perspectives, American Economic Association, vol. 15(3), pages 173-194, Summer.
    3. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
    4. Arild Vatn & Daniel Bromley, 1997. "Externalities — A market model failure," Environmental & Resource Economics, European Association of Environmental and Resource Economists, vol. 9(2), pages 135-151, March.
    5. Coase, Ronald, 1998. "The New Institutional Economics," American Economic Review, American Economic Association, vol. 88(2), pages 72-74, May.
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