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Risk as Impediment to Privatization? The Role of Collective Fields in Extended Agricultural Households

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Author Info

  • Matthieu Delpierre

    ()
    (University of Louvain)

  • Catherine Guirkinger

    ()
    (Center for Research in the Economics of Development, University of Namur)

  • Jean-Philippe Platteau

    ()
    (Center for Research in the Economics of Development, University of Namur)

Abstract

As in the case of agricultural cooperatives, collective fields in extended agricultural households act as an insurance device, by redistributing income between household members. At the same time they entail inefficiencies arising from the incentives to free ride on co-workers efforts. Privatization solves the latter problem but comes at a cost of lower risk-sharing (Carter, 1987). The classic analysis of the trade-off between efficiency and risk-sharing rules out another major risk-sharing mechanism, namely voluntary interpersonal transfers. This paper is a first attempt to merge the two insurance mechanisms: collective production, which is plagued by free riding and income transfers, which are hampered by limited commitment. Privatization of land is shown to interact with incentives to abide by the insurance agreement, so that the tradeoff between risk-sharing and production efficiency may or may not be maintained with income transfers. We show that an increase in the value of the household members’ exit option or a decrease in patience decreases the optimal rate of privatization. With the help of numerical simulations we argue that households of greater size are also more likely to privatize land.

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File URL: http://www.fundp.ac.be/eco/economie/recherche/wpseries/wp/1211.pdf
File Function: First version, 2012
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Bibliographic Info

Paper provided by University of Namur, Department of Economics in its series Working Papers with number 1211.

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Length: 34 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:nam:wpaper:1211

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Keywords: risk-sharing; land; family; privatization;

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References

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  1. Jean-Marie Baland & Patrick Francois, 2003. "Commons as Insurance and the Welfare Impact of Privatization," The Centre for Market and Public Organisation 03/069, Department of Economics, University of Bristol, UK.
  2. Coate, Stephen & Ravallion, Martin, 1993. "Reciprocity without commitment : Characterization and performance of informal insurance arrangements," Journal of Development Economics, Elsevier, vol. 40(1), pages 1-24, February.
  3. Catherine Guirkinger & Jean-Philippe Platteau, 2011. "Transformation of the Family under Rising Land Pressure: A Theoretical Essay," Working Paper Series UNU-WIDER Working Paper W, World Institute for Development Economic Research (UNU-WIDER).
  4. Carter, Michael R, 1987. "Risk Sharing and Incentives in the Decollectivization of Agriculture," Oxford Economic Papers, Oxford University Press, vol. 39(3), pages 577-95, September.
  5. Udry, Christopher, 1996. "Gender, Agricultural Production, and the Theory of the Household," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1010-46, October.
  6. Subhrendu K. Pattanayak & Erin O. Sills, 2001. "Do Tropical Forests Provide Natural Insurance? The Microeconomics of Non-Timber Forest Product Collection in the Brazilian Amazon," Land Economics, University of Wisconsin Press, vol. 77(4), pages 595-612.
  7. Putterman, Louis & DiGiorgio, Marie, 1985. "Choice and Efficiency in a Model of Democratic Semi-collective Agriculture," Oxford Economic Papers, Oxford University Press, vol. 37(1), pages 1-21, March.
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