Working Paper: CEPR ID: DP12344
Authors: Matthieu Delpierre; Catherine Guirkinger; Jean Philippe Platteau
Abstract: As in the case of cooperatives, collective fields in extended agricultural households act as an insurance device, but entail inefficiencies arising from the incentives to free ride on co-workers efforts. Privatization provides good incentives but decreases the level of risk-sharing. The classical analysis of this tradeoff rules out another major risk-sharing mechanism, namely income 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 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, whilelarger households are more likely to privatize land.
Keywords: privatization; risk-sharing; land tenure; mixed farms
JEL Codes: N50; O13
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| increase in the value of a household member's exit option (J17) | decrease in the optimal rate of privatization (L33) |
| decrease in patience (E41) | decrease in the optimal rate of privatization (L33) |
| larger households (D10) | more likely to privatize land (H13) |
| further privatization (L33) | increased efficiency (D61) |
| further privatization (L33) | greater insurance benefits through decentralized income transfers (G52) |
| privatization (L33) | risk-sharing mechanisms (D47) |