Transcript Social Capital and Household Welfare in KwaZulu

NEW INSTITUTIONAL
ECONOMICS (NIE):
Slides are from a presentation made by:
Mylène Kherallah, John Maluccio,
& Nancy McCarthy
IFPRI
NIE: A NEW SCHOOL OF
THOUGHT
“There you go
gentlemen.
According to this,
we are now a
“school of
thought.”
Every school of thought is like a man who has talked to
himself for a hundred years and is delighted with his own
mind, however stupid it may be.
(J.W.Goethe, 1817, Principles of Natural Science)
WHAT IS NIE?
• No commonly agreed upon definition
• Basic premise: Institutions matter for
economic performance
• Purpose is to explain the
determinants of institutions and their
evolution over time, and to evaluate
their impact on economic
performance, efficiency and
distribution
What are Institutions?
A set of formal and informal
rules of conduct that facilitate
coordination or govern
relationships between
individuals.
Why is it called “New”?
• To distinguish it from the “old”
institutionalist school (Veblen,
Commons)
• NIE operates within the framework of
neo-classical economics, but it relaxes
some of its assumptions and
incorporates institutions as an
additional constraint.
NIE: Economic activities are
embedded in a framework of
institutions, formal & informal
NIE
“Old”
Institutionalist
school
Neo-classical
Economics
New Economic History
(North, Fogel, Rutheford)
Public Choice & Political Economy
(Buchanan, Tullock, Olson, Bates)
NIE
New Social Economics
(Becker)
Transaction Costs Economics
(Coase, North, Williamson)
(Social Capital)
(Putnam, Coleman)
Property rights literature
(Alchian, Demsetz)
Economics of information
(Akerlof, Stigler, Stiglitz)
Theory of Collective Action
(Ostrom, Olson, Hardin)
Law and Economics
(Posner)
Transaction cost economics
• Defining transaction costs:
– Cost of screening and selecting a buyer
or seller
– Cost of obtaining information on the
good or service
– Cost of bargaining & negotiating a
contract
– Cost of monitoring & enforcing the
contract
Transaction cost economics
• Coase (1937)
– Market exchange is not costless
– Firms emerge to economize on
transaction costs
– Boundary of the firm determined by
nature and extent of transaction
costs
Transaction cost economics
• Williamson (1996, 2000)
– Combines the concepts of
bounded rationality &
opportunistic behavior to explain
contracts & ownership structure of
firms
– Continuum of organizational form
(from vertical integration to cash
markets) that depends largely on
the magnitude of transaction costs
Transaction cost economics
• North (1986, 1989, 1994)
– Institutions that evolve to reduce
transaction costs are key to the
performance of economies
– Not all institutions that emerge are
efficient
– Role of government is crucial in
specifying property rights and
enforcing contracts
Transaction cost economics
• North (1990)
“The inability of societies to develop
effective, low-cost enforcement of
contracts is the most important
source of both historical stagnation
and contemporary
underdevelopment in the third
world.”
How is transaction cost
econ. relevant?
Globalization &
industrialization
Market
liberalization &
government
devolution
Increasing reliance on vertical linkages, longterm contracts, and coordinated relationships
New Institutional Economics:
Social Capital
• Isn’t “standard” economics enough?
• What is social capital? How does it
operate?
• How is it currently measured?
• Empirical examples
• The (many?) problems
Beyond neo-classical
economics
• Objective is modeling behavior
• Other social sciences, social relations matter
A need to extend the models economists use
and to incorporate findings from other fields
- in fact already exist many examples
Social Capital definition: part 1
• “Social capital refers to features of social
organization [in particular, horizontal
associations] such as networks, norms and
social trust that facilitate coordination and
cooperation for mutual benefit.” Putnam
(1995)
• “a variety of different entities, with two
elements in common: they all consist of some
aspect of social structure, and they facilitate
certain actions of actors … within the
structure” Coleman (1988)
Social Capital definition: part 2
• “includes the social and political environment
that enables norms to develop and shapes
social structure. .. Includes the more
formalized institutional relationships and
structures, such as government, the political
regime, the rule of law, the court system and
civil an political liberties” Grootaert (1998)
• “Social capital is defined as the norms and
social relations embedded in the social
structures of societies that enable people to
coordinate action to achieve desired goals.”
The World Bank (2000)
Social Capital Definitions: part N
• Enough already!
Social Capital definition:
deconstruction
• Norms
• Networks
• Trust
 Coordination and
cooperation
•
•
•
•
Individual/Household
Local/Community
National
International
• Private versus Public
good
How is social capital hypothesized to
work?
• lowers transactions costs of exchange
• improved diffusion of information and
innovations
• strengthens informal insurance
mechanisms
• increases the probability of trust-sensitive
exchanges being made
• improves local authority performance by
drawing them into networks
Social? Capital?
• Is it Social?
– Social in sense of society
– But this does not necessarily mean public
good
• Is it Capital?
– Analogy to other forms of capital useful
– Don’t push too hard on this, especially
distinction between stocks and flows
How is social capital quantified
(at “micro” level)?
• Contacts & other network measures
• Group membership (and characteristics)
• Degree of civic engagement and/or
responsibility
• Strength of family networks
• Trust measures
• (Absence of) Violence
What’s the purpose of
Institutional Research
• To sufficiently capture the institutional context
so that we can more accurately predict how
other policies are likely to impact on
households (&/or members in the
household)?
• To capture the institutional context, and to
capture how any particular policy may in turn
affect the functioning of the institution?
• To determine factors that directly affect the
institution, and so derive policy
recommendations to directly change the
institution?
Concluding Questions:
• How useful is transaction cost
economics to inform public policy
beyond enforcing property rights &
contracts, improving public market
information, investing in infrastructure,
etc.?
• Is there a benefit to separating social
capital out, or should we just focus on
the individual mechanism being studied
in each case?
Concluding Questions:
• Who decides on the criteria for
assessing institutions? Especially when
distribution is important?
• Where’s the “demand” for these types of
analysis? Not just property rights, but
broader “socio-cultural” institutions?