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Category: Law and Economics

Published January 5, 2011

When Geography Shapes Culture and Institutions

The Economist‘s Democracy in America blogs has an interesting post on how Nevada has come to specialize in sin:

“What was to be the good or service that [Nevada] could provide relatively (as opposed to absolutely) more efficiently than any other place? The state has little water, so agriculture was hardly the likely answer. In fact, there seemed to be no obvious answer at all. Until the penny dropped. The answer was legislative: “We created our own comparative advantage; we embraced sin,” says Mr Herzik. It started with prize fighting (think of the now-legendary bout between Jack Johnson and James Jeffries in Reno on Indpendence Day in 1910). Then came easy divorce. Then came gambling. And, of course, prostitution, which is legal in all of Nevada’s rural counties (although it can allegedly be found even in cities such as Las Vegas). Nevada’s economy today is based on sin. For example, about half of the state’s revenue comes, directly or indirectly, from gambling in the form of casino taxes or the sales taxes of tourists.”

This is a nice example of how geography can influence institutions and, eventually, culture. But the reasoning really does beg the question of why neighboring Utah, which as far as I know is as resource-poor as Nevada, ended up becoming almost the complete opposite as regards its culture and institutions?

Generally speaking, however, it looks as though institutions are a more important determinant of economic development than geography, as per this paper.

Published January 2, 2011

Smallholder Participation in Agricultural Value Chains

I have a new working paper with Chris Barrett, Maren Bachke, Hope Michelson, Sudha Narayanan, and Tom Walker on agricultural value chains in developing countries. Here is the abstract:

“Supermarkets, specialized wholesalers, and processors and agro-exporters’ agricultural value chains have begun to transform the marketing channels into which smallholder farmers sell produce in low-income economies. We develop a conceptual framework through which to study contracting between smallholders and a commodity-processing firm. We then conduct an empirical meta-analysis of agricultural value chains in five countries across three continents (Ghana, India, Madagascar, Mozambique, and Nicaragua). We document patterns of participation, the welfare gains associated with participation, reasons for non-participation, the significant extent of contract non-compliance, and the considerable dynamism of these value chains, as farmers and firms enter and exit frequently.”

Comments and suggestions would be most welcome.

Published January 2, 2011

Grade Inflation

Fabio Rojas over at orgtheory.net has a post about grade inflation in which he lists five possible options to curb grade inflation:

  1. A curve. The top 10% get As, the next 20% get Bs, etc.
  2. A fixed bar. There is a pre-determined level of skill that get’s you the high grade.
  3. Pass/no pass. We abolish the idea of grades and just work with a “you get it or you don’t” system.
  4. Contingent. The instructor decides the grades based on the merits and skills of each batch of students.
  5. A budget. Instructors don’t have to give A’s, but all A’s are capped at 10% of the course.

At the Sanford School, we have adopted a mixture of several of the options above: each course category — determined by the course number and by whether a course is a core course — has a target mean grade.

For example, both my 200-level seminars have a target mean grade of 3.4, i.e., slightly above a B+, but my core 100-level course has a target of 3.2. How to arrive at these mean course grades is entirely up to the instructor’s discretion.

How is this enforceable? Each year we receive a memo from the Director of Undergraduate Studies informing us of these targets. The memo also reminds us that whether we stick to these targets will be taken into account by tenure and promotion committees for tenure-track faculty and at contract renewal time for non-tenure-track faculty.

The system seems to work well. In my syllabi, I inform my students of the target mean and explain that there has to be a distribution, if only to set up incentives for them to learn the material.

As someone who has done a good amount of work, both theoretical and empirical, on contracts, I am always impressed by the effectiveness of the rank-order tournaments we run in our classes.