Transcript Slide 1

Introduction Part 1:
“What Is Poverty and Who Are the Poor? ”
Introduction:
“What Is Poverty and Who Are the Poor? ”
People Living in “Extreme Poverty”
World Bank
1,300,000,000
World Bank 2010
$1.25/day
Economic Terminology
•
•
•
•
Income
Wealth
GDP (Gross Domestic Product)
Per capita GDP
Why do we use GDP to measure poverty?
Economic Terminology
• Absolute Poverty – measured against a designated
minimum threshold of material well-being. The
incomes of the poor fall below the minimum
threshold.
– Current standard = $1/day PPP
• Relative Poverty - identified by comparing levels of
material well-being experienced by different
individuals or groups, rather than by comparing the
level of well-being to a standard.
Poverty Can Be Measured by Either Output (GDP)
or Consumption
Consumption Measure of Number of Poor by World Region
Regions
20005
2008
332 million
284 million
6 million
2 million
Latin America and the
Caribbean
48 million
37 million
Middle East and North
Africa
11 million
9 million
South Asia
598 million
571 million
Sub-Saharan Africa
395 million
386 million
Total
1.39 billion
1.289 billion
East Asia and the Pacific
Eastern Europe and Central
Asia
Reduction
in number of poor, 2005-2008: 101 million
Sources: World Bank Poverty and Inequality
http://www.worldbank.org/Data/Views/Reports/TableView.aspx (May 1,2012
Countries of the World;
Low, Middle and High Income
The number of extreme poor has
declined by 500 million
since 1981
Share of World Population in
Poverty, 1820 – 1998 ($1/day)
World BankDavid Dollar, Development Research Group, World Bank. “Capitalism, Globalization and Poverty.” unpublished
paper, written for The Foundation for Teaching Economics, March, 2003, p. 27
Number of People Living on Less Than $1
Per Day, 1820 - 1998
1980
World BankDavid Dollar, Development Research Group, World Bank. “Capitalism, Globalization and Poverty.” unpublished
paper, written for The Foundation for Teaching Economics, March, 2003, p. 27
World Bank 2009
• ..\..\..\Videos\RealPlayer Downloads\Hans
Rosling's 200 Countries, 200 Years, 4 Minutes
- The Joy of Stats - BBC Four.flv
Introduction Part 2:
“What Is Poverty and Who Are the Poor? ”
~1750
Years of Life Expectancy at Birth
Select Years
1950-55
1975-80
2005-10
~30 (1800)
66
74
81
~36
(1799-1803)
69
73
79
India
25
(1901-11)
39
53
64
China
25-35
(1929-31)
41
65
73
38
48
51
46
60
67
Place
Middle
Ages
France
UK
20-30
Africa
World
20-30
Sources: Lee and Feng (1999); Peterson (1995); Wrigley and Schofield (1981, 529); World Resources Institute (2011);
UNDP (2002) http://hdr.undp.org/statistics/data/indic/indic_1_1_1.html
Real Gross Domestic Product Per Capita
(1990$ International PPP)
Area
1000
1500
1700
1820
1952
Europe
$400
~$640
870
1,130
4,370
USA
600
1,260
10,650 23,380 27,948
India
530
530
610
1,570
1,957
540
3,200
3,583
1,220
1,489
5,190
6,049
China
450
600
600
600
Africa
400
400
400
400
World
420
550
600
670
2,270
Sources: Maddison (1998, 1999)
Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003.
1995
2001
13,950 19,256
Real Gross Domestic Product Per Capita
(2005$ International PPP)
1995
2001
2007
2010
Europe
$24,674
28,364
30,789 29,765 30, 455
USA
33,903
39,602
41,260 40,650
India
1,452
1,832
2,685
3,240
3,876
China
1,849
2,868
5,239
6,810
9,233
Africa
1,498
1,589
1,914
2,022
World
7,037
7,955
9,535
9,869
Sources: Maddison (1998, 1999)
Development Centre Studies The World Economy: Historical Statistics, Maddison, 2003.
*University of Pennsylvania
2012*
49,965
10,922
Africa Continues to Lag Behind:
1/3 of the world’s “extremely poor”
What does recent
research tell us
about why Africa
continues to lag
behind – and what
we can do about it?
What does
Capitalism
have to do with
Poverty?
Overall Economic Freedom Index and the
Top 10
Hong Kong
Singapore
New Zealand
Switzerland
Unit. Arab Em.
Mauritius
Finland
Bahrain
Canada
Australia
0
2
Source: The Fraser Institute.
4
6
Score (out of 10)
8
10
Overall Economic Freedom Index and the
Bottom Ten
Algeria
Congo, Dem. R.
Burundi
Central Afr. Rep.
Angola
Chad
Zimbabwe
Congo, Rep. Of
Myanmar
Venezuela
0
Source: The Fraser Institute.
2
4
6
Score (out of 10)
8
10
GDP Per Capita
(ppp), 2010
Per Capita Income and Economic Freedom
Quartile
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators,
2013
Growth in Developing Nations Per Capita and
Economic Freedom Quartile
Growth GDP per capita
(average annual %), 19912011
%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Growth GDP per capita
(average annual %),
1991-2011
Income Share of the Poorest 10% and
Economic Freedom
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Income of the Poorest 10% and Economic
Freedom
Income of the Lowest
10%, 2011
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Economic Freedom and Political Rights
(low scores indicate high level of rights)
Political Rights
(out of 7)
5.0
4.0
3.0
2.0
1.0
0.0
Most Free
2nd Quartile
3rd Quartile
Quartile
Most
Free ……………. Least
Least Free
Quartile
Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2011,
available at http://www.freedomhouse.org/.
Economic Freedom and Civil Rights
Low scores indicate high level of rights
5.0
Civil Liberties
(out of 7)
4.0
3.0
2.0
1.0
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Freedom House, Freedom in the World Country Ratings, 2011,
available at http://www.freedomhouse.org/.
Economic Freedom and Corruption
Corruption Rating
(out of 100)
High scores indicate low corruption
100
90
80
70
60
50
40
30
20
10
0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Transparency International, Corruption Perceptions Index,
2012 available at http://www.transparency.org.
Life Satisfaction
of of 10
Economic Freedom and Life Satisfaction
7.0
6.5
6.0
5.5
5.0
4.5
4.0
3.5
3.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; Happy Planet Index 2012
Economic Growth
improves the lives of the poor by
making the pie bigger
Bigger “slices”
mean higher
standards of
living
Reduced Poverty Since 2000:
Research on Growth vs. Safety Net ?
1.
4/5 growth / 1/5 redistribution (Dollar, Kraay, Kleineberg study)
• context matters: averages hide wide range of variation
2. economic growth is not generally associated with increased
income inequality:
• the (overall) share of income going to the poorest 2 quintiles
(40%) does not change significantly with growth
• poor governance often increases income inequality for
specific populations in specific locations
3. 4/5 of the improvements in the lives of the poorest 40% of the
population over the past decade are attributable to economic
growth; 1/5 is attributable to redistribution
Talking about “Is Capitalism Good for the Poor?”
• distinguish between “poverty” v. “poor people”
• distinguish between treating symptoms v. underlying causes
Reduced Poverty Since 2000:
Research on Growth vs. Safety Net ?
1. 75% growth / 25% redistribution (Dollar, Kraay, Kleineberg study)
• context matters: averages hide wide range of variation
safety net (redistribution)
econ growth
demographic comp.
Africa Continues to Lag Behind:
1/3 of the world’s “extremely poor”
What does recent
research tell us
about why Africa
continues to lag
behind – and what
we can do about it?
Classroom Activity – Lesson 1:
“Defining Terms”
“Capitalism” is identified by its
characteristic institutions
Institutions: the formal and informal “rules of the
game” that shape incentives and outline expected
and acceptable forms of behavior in social
interaction.
•
•
•
•
Private Property Rights
Rule of law
Open, competitive markets
Entrepreneurship and innovation
ECONOMIC ANALYSIS
clearly present – the component is present in the economy with few
exceptions
generally present – the component is present in the economy, but with
many or significant exceptions
generally absent – the component is only present in the economy in
some limited forms
clearly absent – the component is almost entirely excluded from the
economy
not enough information
Present ?
markets
private property
rule of law
entrepreneurship
Evidence?
United States
•The judiciary functions independently and predictably
although serious constitutional questions have arisen
regarding the government mandated health insurance
decision.
•Corruption and cronyism is on the increase and is
undermining the institutional integrity of the rule of law,
resulting in an 86th percentile ranking in control of corruption
and a corruption perception index of 7.1 (out of 10) by
Transparency International and a decrease of 4 points in the
heritage Foundation score to 71 from a previous 75 in 2010.
•Property rights are guaranteed, although affected by
increasing regulations, ranking the US 19th in the world, with
a score of 85 out of 100 by the Heritage Fndn.
Specific Situation: Apple Patent Victory
Aug. 25, 2012
SAN JOSE, Calif.—Nine jurors delivered a sweeping victory to
Apple Inc. in a high-stakes court battle against Samsung
Electronics Co., awarding the Silicon Valley company $1.05
billion in damages and providing ammunition for more legal
attacks on its mobile-device rivals.
Jurors Friday found that Samsung infringed all but one of the
seven patents at issue in the case—a patent covering the
physical design of the iPad. They found all seven of Apple's
patents valid—despite Samsung's attempts to have them
thrown out. They also decided Apple didn't violate any of
the five patents Samsung asserted in the case.
ECONOMIC ANALYSIS
clearly present – the component is present in the economy with few
exceptions
generally present – the component is present in the economy, but with
many or significant exceptions
generally absent – the component is only present in the economy in
some limited forms
clearly absent – the component is almost entirely excluded from the
economy
not enough information
Present ?
markets
private property
rule of law
entrepreneurship
Evidence?
clearly present
Prices and products
determined in markets
clearly present
Patents upheld
clearly present
Courts act and
decisions are enforced
clearly present
Millions of companies
operate in every sector
2012 Country Scenario Updates
Capitalism is best thought of not as “a system,” but as a
continuum of institutional combinations . . . .
More
Less
capitalist
capitalist
Capitalism is best thought of not as “a system,” but as a
continuum of institutional combinations . . . .
More
Less
capitalist
capitalist
Capitalism is best thought of not as “a system,” but as a
continuum of institutional combinations . . . .
More
Less
capitalist
capitalist
Some institutional forms confer benefits on the poor
. . . and others do NOT.
Heritage:
www.heritage.org/index/
freetheworld.com – Index of Economic Freedom
Ranking Criteria:
• Size of government
• Legal system & Property rts
• Sound money
• Freedom to trade internationally
• Regulation
Process: Identify quantifiable data that can be used to rank
countries.
Consider how these measures connect to the institutions we
ranked in the “Will the Real Capitalism?” activity:
1. Size of Government
A. Government consumption
B. Transfers and subsidies
C. Government enterprises and investment
D. Top marginal tax rate
(i) Top marginal income tax rate
(ii) Top marginal income and payroll tax rate
markets, entrepreneurship
2. Legal System and Property Rights
A. Judicial independence
B. Impartial courts
C. Protection of property rights
D. Military interference in rule of law and politics
E. Integrity of the legal system
F. Legal enforcement of contracts
G. Regulatory restrictions on the sale of real property
H. Reliability of police
I. Business costs of crime
rule of law, entrepreneurship, property rights
3. Sound Money
A. Money growth
B. Standard deviation of inflation
C. Inflation: most recent year
D. Freedom to own foreign currency bank accounts
entrepreneurship
4. Freedom to Trade Internationally
A. Tariffs
(i) Revenue from trade taxes (% of trade sector)
(ii) Mean tariff rate
(iii) Standard deviation of tariff rates
B. Regulatory trade barriers
(i) Non-tariff trade barriers
(ii) Compliance costs of importing and exporting
C. Black-market exchange rates
D. Controls of the movement of capital and people
(i) Foreign ownership/investment restrictions
(ii) Capital controls
(iii) Freedom of foreigners to visit
markets
5. Regulation
A. Credit market regulations
C. Business regulations
(i) Ownership of banks
(i) Administrative
(ii) Private sector credit
requirements
(iii) Interest rate controls/ negative
(ii) Bureaucracy costs
real interest rates
(iii) Starting a business
B. Labor market regulations
(iv) Extra payments/
(i) Hiring regulations and minimum
bribes/favoritism
wage
(v) Licensing restrictions
(ii) Hiring and firing regulations
(vi) Cost of tax
(iii) Centralized collective
compliance
bargaining
(iv) Hours regulations
(v) Mandated cost of worker
dismissal
Markets, entrepreneurship
(vi) Conscription
10
9
8
Most Free: Hong Kong 8.97
7
Venezuela
Russia
Egypt India
Israel Czech Republic
Poland Uganda Malaysia
Indonesia Belize
Finland Canada Chile
Jordan U.S.
Ireland Peru
Hong Kong
Fraser Institute Index of Economic Freedom 2013
(Released Sept. 2013)
2011 data
6
Least Free: Venezuela 3.93
5
10
9
8
Most Free: Hong Kong 8.9
7
Venezuela
Belize Russia
India
Egypt
Malaysia Indonesia
Poland Uganda
Israel Czech Republic
Canada Finland Chile
Ireland
U.S. Jordan Peru
Hong Kong
Fraser Institute Index of Economic Freedom 2012
(Released Sept. 2012)
2010 data
6
Least Free: Venezuela 4.07
5
2013 Rankings* (Out of 151)
•
•
•
•
•
•
•
•
•
•
•
•
Hong Kong 1
Singapore 2
NZ 3
Switzerland 4
UAE 5
Mauritius 6
Finland 7
Bahrain 8 Canada 8
Australia 10
Chile 11
United Kingdom 12
Jordan 13 (42 in 2010, 62
2012)
• U.S. 17 (3 in 2006)
• Israel 49 (44 in 2007, 83 in
2011)
• Poland 59 (88 in 1990, 44 in
2012)
• Uganda 64 (67 in 2010, 51
in 2001, 113/113 in 1990)
• Greece 85
• Kenya 87
• Mexico 94 (69 in 2010)
• Russia 101
• Egypt 108 (from high of 46,
80 in 2010)
• India 111
• China 123 (82 in 2010)
• Iran 127
• Ethiopia 142
• Zimbabwe 149
• Myanmar 151
• Venezuela 152 * 2011 data
2012 Rankings* (Out of 144)
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Hong Kong 1
Singapore 2
NZ 3
Switzerland 4
Australia 5
Canada 6
Bahrain 7
Mauritius 8
Finland 9
Chile 10
United Kingdom 12
Ireland 12
U.S. 18 (down from 3 in 2006)
Japan 20
Poland 48 (88 in 1990)
• Uganda 50 (67 in 2010, 51
in 2001, 113/113 in 1990)
• Jordan 62 (42 in 2010)
• Greece 81
• Mexico 91 (69 in 2010)
• Egypt 99 (from high of 46,
80 in 2010)
• Israel 52 (44 in 2007, 83 in
2011)
• Russia 95
• China 107 (82 in 2010)
• India 111
• Iran 111
• Zimbabwe 142
• Myanmar 143
• Venezuela 144
* 2010 data
Africa Continues to Lag Behind:
1/3 of the world’s “extremely poor”
What does recent
research tell us
about why Africa
continues to lag
behind – and what
we can do about it?
Reduced Poverty Since 2000:
Research on Growth vs. Safety Net ?
1. 75% growth / 25% redistribution (Dollar, Kraay, Kleineberg study)
• context matters: averages hide wide range of variation
safety net (redistribution)
econ growth
demographic comp.
Reduced Poverty Since 2000:
Research on Growth vs. Safety Net ?
1.
75% growth / 25% redistribution (Dollar, Kraay, Kleineberg
study)
• context matters: averages hide wide range of variation
2. economic growth is not generally associated with increased
income inequality:
• the (overall) share of income going to the poorest 2 quintiles
(40%) does not change significantly with growth
• poor governance often increases income inequality for
specific populations in specific locations
3. 4/5 of the improvements in the lives of the poorest 40% of the
population over the past decade are attributable to economic
growth; 1/5 is attributable to redistribution
Talking about “Is Capitalism Good for the Poor?”
• distinguish between “poverty” v. “poor people”
• distinguish between treating symptoms v. underlying causes
Growth GDP per capita
(average annual %),
1991-2011
Income Share of the Poorest 10% and
Economic Freedom
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Income of the Poorest 10% and
Economic Freedom
Income of the Lowest
10%, 2011
$12,000
$10,000
$8,000
$6,000
$4,000
$2,000
$0
Most Free
Quartile
2nd
Quartile
3rd
Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Growth in Developing Nations Per Capita and
Economic Freedom Quartile
Growth GDP per capita
(average annual %), 19912011
%
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Most Free
Quartile
2nd Quartile
3rd Quartile
Least Free
Quartile
Most Free ……………. Least Free
Sources: The Fraser Institute; The World Bank, World Development Indicators, 2013.
Institutions Associated with Economic Growth
•
•
•
•
Private Property Rights
Rule of law
Open, competitive markets
Entrepreneurship and innovation
Focus of lessons 2-5 in “Is Capitalism
Good for the Poor?”
Proposal Selection Form
XyZpDQ
Proposer Identification Code __________________
Circle a proposal:
19/1
18/2
17/3
10/10
9/11
8/12
16/4
7/13
15/5
14/6
6/14
5/15
13/7
4/16
12/8
11/9
3/17
2/18 1/19
If the responder accepts this proposal,
$$$$$
$$$$$
I will receive ________
and the responder will receive ________ .
If the responder does not accept this proposal, both the responder
and I will receive $0.
XyZpDQ
Proposer Identification Code __________________
Circle a proposal:
19/1
18/2
17/3
10/10
9/11
8/12
16/4
7/13
15/5
14/6
6/14
5/15
13/7
4/16
12/8
11/9
3/17
2/18 1/19
If the responder accepts this proposal,
$$$$$
$$$$$
I will receive ________ and the responder will receive ________ .
If the responder does not accept this proposal, both the responder and I will receive $0.
********************
123LMNO
Responder Identification Code _________________
If I accept the proposal circled above,
$$$$$
$$$$$
I will receive ________
and the proposer will receive ________
If I reject this proposal , I will receive $0 and the proposer will receive $0.
Circle either accept or reject below.
ACCEPT
REJECT
What did the proposers offer?
Why?
How did they decide how much to offer?
Which offers did responders
accept? / reject?
Why?
How did responders decide whether to accept
or reject an offer?
A fundamental assumption of economics is
that economic man is a rational decisionmaker who acts in his self-interest.
Are the results of this activity consistent with
this theory of homo economicus (economic
man)?
Why or Why not?
Classroom Activity – Lesson 5:
“Institutions That Promote Social Cooperation”
Classroom Activity – Lesson 5:
“Character Values and Capitalism”
Experimental Economics - History
• John Nash – 1994 Nobel Prize in Economics
for his work in game theory
• Game Theory – the study of interactions in
which the results of one person’s choices
depend not only on his own behavior, but
also on the choices made by another person.
• Vernon Smith – 2002 Nobel Prize in
Economics for experimental economics,
which builds on game theory.
Purpose of Ultimatum Game Experiments
“These experiments create an empirical
challenge to what we call the
selfishness axiom—
the assumption that individuals seek to
maximize their own material gains in these
interactions and expect others to do the
same.”
(Joseph Henrich, Emory University –
recently completed a 4-continent research
project in which the Ultimatum Game
was played in 15 indigenous societies)
If individuals “seek to maximize their own
material gains,” and assume that other people
do, too, what will proposers do?
Why?
(explain their thinking)
If individuals “seek to maximize their own material
gains,” and assume that other people do, too,
how will responders react to proposals?
Why?
Results of Large Numbers of Ultimatum Game
Experiments*:
• the modal (most common) split is
50% - 50%
• the mean (average) split is about
60% - 40%
• about 20% of low offers are rejected
*Games conducted with college students in the U.S. and other
developed countries. Students were paid to participate. Stake was the
equivalent of $10 U.S. Results are considered to be “robust.”
Conclusions:
The results of ultimatum games are
inconsistent with the model of
economic man that predicts material
self-interest (selfishness).
Note, especially, the rejection rate.
Proposed Explanations
• “Other-regarding” behavior is one of our
preferences – we gain satisfaction not only
from our lives (as the homo economicus model
predicts), but also from the lives of others.
• Players demand fairness, and punish unfair
behavior on the part of proposers.
– Responders take into account not just the amount
of money offered but also the percent of the total.
Proposed Explanations (cont.)
• More equal splits may be less the result of
fearing punishment for being unfair than they
are the result of individuals’ concern for their
reputations
– This is consistent with the results of experiments
comparing the behavior of people in market and
non-market economies.
– (also consistent with Adam Smith’s observations)
Conclusions based on continued research:
• Behavior in none of the 15 less-developed
societies was consistent with the selfishness
axiom.
• Individual differences do not explain ultimatum
game outcomes
– age,
– gender,
– socio-economic status,
– risk-aversiveness,
– size of the stake (up to 3 months income)
However . . .
Group Differences
• in the routine degree of economic
cooperation in everyday life
and
• in the degree to which markets are an
integral part of society
are significant
in explaining
experimental outcomes
Thus, we return to institutions:
1. The way people play the ultimatum game reflects the
way they interact in everyday life.
2. Splits are more equal in cultures where people
commonly exchange products and labor in markets.
3. Markets are institutions through which societies
develop distinctive patterns of interaction, which may
be internalized and reflected in ultimatum game
behavior.
Food for Thought (or assessment)
Suppose that someone argued that capitalism
is not good for the poor because it makes
people greedy and selfish and encourages
them to ignore others and think only of
themselves. How could you use the results of
ultimatum game experiments to counter that
argument?
Classroom Activity – Lesson 2:
“Property Rights and the Rule of Law”
Property Rights ARE Human Rights
People
Not
Property
Property rights are the
rights of human
beings to freely use
and transfer their
possessions,
including
themselves.
Property Rights: New in Human
History
Benefits to the Poor
Under the rule of law, the poor
can be secure in their property
rights, which gives them the
opportunity to use property to
improve their well-being.
part 2:
How property rights encourage growth by providing incentives for the
creation of capital.
Capital – dead or alive?
Property Rights benefit the poor by making
owned capital secure and productive.
Lesson 2: “Property Rights and the Rule of Law”
Property Rights and Growth
• Property Right holders have an
incentive to preserve their property.
• Owners consider the future.
• Owners more likely to improve property
– because they retain the value of the
improvements
Investment
• Secure property rights make investment
more likely.
• Property Rights allow people to obtain
debt.
– Use of past and future incomes.
– Collateralization is of greatest benefit to the
poor.
Greater Security = Greater Productivity
• Property rights benefit the poor more than
the rich (who can defend their own property
rights)
– definition and enforcement of Property Rights
gives the poor the same rights enjoyed by the
rich.
• Secure property rights contribute to
economic growth by enabling the poor to
shift effort from protective to productive
activities.
Secure Property Rights
• Defined
• Defensible
• Divestible
India’s Dalits: “Untouchable”
Informal restrictions
on property rights
Defined but not Enforced
• A right that is
defined but
not enforced
is useless.
Property Rights . . .
AND the Rule of Law
Securing Property Rights
• Rule of physical force (anarchy)
• Rule of men
• Rule of law
Rule of Physical Force
Characteristics of Property Rights Under Anarchy
Defined
Seldom and then not
clearly
Defended
Only for those with the
physical force to do so
or the money to pay
someone else
Peaceful transfer
uncommon – even
through inheritance
Peaceful divestiture
Rule of Man
Characteristics of Property Rights Under Rule of Man
Defined
Defended
Peaceful divestiture
Sometimes – but often
irrelevant or ignored
Only for those who
have the favor of those
in charge
Subject to the wishes of
those in power
Formal laws may exist, but enforcement is subject to the whim
of those in power
Rule of Law
Characteristics of Property Rights Under Rule of Law:
Definition
clear
Defendable
Yes – both publicly and
privately
Divestible
Peaceful transfer
routine
Both the governed and the governors are subject to the law.
Big Picture
• Rights to property promote economic growth by
encouraging preservation, improvement and
investment in owned resources.
• In societies without clearly defined property rights
the poor are disadvantaged because they lack the
resources to enforce their rights.
• To effectively stimulate economic growth property
rights must exist within a society characterized by
stable and predictable rules of law.
Classroom Activity – Lesson 2:
“Property Rights and the Rule of Law”
Importance of Property Rights to Economic Growth
and to the Well-being of the Poor
Para, Brazil
Amazon Basin
Focusing the Research:
The Role of Property Rights in Reducing Poverty
We KNOW:
• Economic growth is the key to reducing absolute
poverty and raising standards of living.
• One source of economic growth is increased
productivity, the ability to increase output per unit of
resource input.
• Productivity is increased through investment in human
and physical capital
• People invest in their human capital by getting
education, training, or experience.
• Investment in physical capital includes developing
and/or purchasing the buildings, machines, and
equipment that make human labor more productive.
• People take better care of things they own. Property
rights act as an incentive for people to protect the value
of their possessions.
We WANT to know:
• Are property rights a tool in
fighting poverty?
• Does the existence of strong
property rights promote
economic growth?
• Does clear title to land
encourage (act as an incentive
for) capital investment?
Research Question:
On the Amazonian frontier of Brazil, are
landholders with title more or less likely than
landholders without clear title to invest in capital
improvements to their land?
Ricardo’s Journal
• June 01, 1993 11:49 a.m. Fax to Dr. Lee Alston and Dr. Gary
Libecap
• The travel to São Felix was not too bad as I expected. We went
on the back of a pick-up truck, and although crowded (13 people,
2 kids and two chickens on the truck and 4 people on the cabin) it
was better than a bus. . . .
Ricardo’s Journal
• To get a better sample, I choose to survey the colony in the two
opposite extremes. One 4 minutes down river from town (Santa
Rosa) and other 5 hours upriver (Chadazinho). About half people
I surveyd had definitive land tittle, but only a few are registered . . .
and only few are in the name of landholder. Usually, the tittle is on
name of the previous holder (i.e. when the previous owner sold
the land, he gave as well the tittle). Sometimes the farmers got
also a power of attorney paper, sometimes not. Registering the
tittle and transferring is very expensive and this is the reason
people usually do not do it.
Survey Data
Current
Landholder’s
Name
Has Clear
Title to
Land ?
Hect
cleared
Hect
permanent crops
added
Chickens
Cattle
Pigs
Horses
Hect
pasture
added
Meters
fenced
Almezino
Yes
12.5
27.5
40
50
10
0
30
1600
Fco.
No
20
22
200
2
4
3
20
2600
Raimundo
Yes
17
25
80
11
1
3
14
240
Raul
Yes
2
26
30
12
0
1
20
1000
Marcelo (1)
Yes
0
0
10
0
2
0
0
0
Julia
Yes
0
12.5
25
3
0
0
4
1500
Ant. Evang
Yes
2
12.5
100
20
4
0
4
3300
Anor.
Yes
0
15
70
0
12
0
1
2000
Geraldo
Yes
8
35
70
100
35
10
20
8,000
Yes – The settler has
a clear and legally
recognized title to
the land and the title
would be upheld in a
court of law.
Current
Landholder’s
Name
The number of hectares the
farmer cleared since he
became the landholder.
Converting land to pasture required logging
out the trees, and/or removing stumps and
rocks, and/or seeding to create suitable
grazing for cattle.
(Land cleared by a previous
owner is not included.)
1 hectare = ~2.5 acres, or 2.5
football fields.
Has Clear
Title to
Land ?
Hect
cleared
Hect
Permanent crops
added
Chickens
Cattle
Pigs
Horses
Hect
pasture
added
Jose
Cirilio
Yes
20
4
30
50
5
3
20
800
Vicente
No
12.5
14
100
27
3
3
12.5
1000
NO - The settler has no claim to
the land other than occupancy
(squatter), or his claim is
uncertain. For example, the
settler holds a signed receipt
from a previous owner, or the
settler has a provisional title
which hasn’t been registered.
Permanent crops are usually tree
crops such as bananas, coffee, and
cocoa. Several years’ growth is
required before they bear a
significant crop. However, in the
long run, they tend to be more
valuable than annual crops (which
are planted each year).
Meters
fenced
Landholders could maintain
livestock for their own use
without much fencing.
Raising cattle for market
required fencing.
Identifying Investment
Activity
Investment
in Land?
Yes / No
Explanation
Clearing land
Planting
permanent crops
Buying chickens
Buying cattle
Buying pigs
Buying horses
Adding pasture
Fencing
.
Calculating the Impact of Title
Average
investment
in
meters fenced
Average
investment
in
hect pasture
added
Title
Title
No
title
No
title
Average
investment
in hect
perm crops
added
Title
No
title
Average
investment
in
hect land cleared
Title
No
title
Calculating the Impact of Title
Average
investment
in
meters fenced
Average
investment
in
hect pasture
added
Title
Title
No
title
1551.5
No
title
17.88
788.89
Average
investment
in hect
perm crops
added
Title
No
title
20.31
5.5
Average
investment
in
hect land cleared
Title
No title
15.31
16.56
10.5
Predict – Who Has Title ?
Name
Title to
Land
Hect
cleared
Osdete
Hect
Permanent
crops added
Hect
Pasture
added
Meters
fenced
0
?
?
Joao
Golano
35
85
30
5500
Jose
Carlos
25
1
25
0
Germano
18.5
44
0
0
Conclusions of the Pará Study
• Farmers were aware that having title increased the
value of their property
• Farmers assessed the costs and benefits of
obtaining title (distance, etc.)
• Farmers with title made significantly greater levels
of investment in the productivity of their land
• Securing and enforcing the property rights of the
poor is an important step in improving their wellbeing