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Institutional Reform in the Rural Sector with Labor and Capital Flows: Factor Income Effects, Structural Changes and Misallocations


  • Ronan Congar

    () (Department of Economics, University of Ottawa, Ottawa, ON)

  • Louis Hotte

    () (Department of Economics, University of Ottawa, Ottawa, ON)


We analyze the general equilibrium effects of a fundamental property regime transition in the rural sector - agricultural or resource - when both labor and (reproducible) capital are free to move. In contrast to manufacturing, rural production has two characteristic features: it uses a fixed natural asset (land or other natural resources) and operates under one of two property regime types: common property versus exclusive property. Common property is fundamentally characterized with sharing, thus corresponding to such institutions as the family farm (Lewis 1954), free access to resources, and collective use, but adapted for the presence of capital use. We show that labor may actually gain from being effectively forced out of the rural sector. More generally, relative factor intensities determine the factor return effects of the transition, as well as either capital or labor deepening in both sectors. And while the unit cost of effective input efforts decrease, both factors flow out of the rural sector. Under a common property regime, the agricultural productivity gaps for labor and capital are uniquely determined by the output elasticity of land.

Suggested Citation

  • Ronan Congar & Louis Hotte, 2016. "Institutional Reform in the Rural Sector with Labor and Capital Flows: Factor Income Effects, Structural Changes and Misallocations," Working Papers 1606E, University of Ottawa, Department of Economics.
  • Handle: RePEc:ott:wpaper:1606e

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    More about this item


    Institutions; Property Rights; Agriculture; Natural Resources; Factor Migration; Factor Returns; Redistribution; Factor Misallocation; Structural Changes; Agrarian Reform; Resource Privatisation;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D23 - Microeconomics - - Production and Organizations - - - Organizational Behavior; Transaction Costs; Property Rights
    • D33 - Microeconomics - - Distribution - - - Factor Income Distribution
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • N50 - Economic History - - Agriculture, Natural Resources, Environment and Extractive Industries - - - General, International, or Comparative
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • O15 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements
    • Q15 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Land Ownership and Tenure; Land Reform; Land Use; Irrigation; Agriculture and Environment

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