The political economy of regulation: A case study of rice and coffee markets in Sierra Leone, 1964-1986.

Abstract

The thesis is an attempt to analyse the political economy of regulation by examining two commodity markets in Sierra Leone - an importable rice market and an exportable coffee market for the period 1964 - 1986. The main goals of the thesis are: (i) to estimate the welfare costs of rent seeking in the rice market, and (ii) to examine producer behaviour in the light of a state monopsony which pays a farm gate price to coffee producers well below the World market price. The thesis begins with a review of the rent-seeking literature to provide a framework for the empirical work. A model is constructed for the rice market in which consumers self-select across three segments of the market: (a) queuing for rice at controlled prices, (b) paying a politician a premium for a Rice Purchasing Authority (RPA) or "chit", and (c) buying rice in the free market at higher clearing prices. A model is also constructed to explain the behaviour of a representative coffee farmer who faces a choice between selling his output in the official market or selling it illegally himself or to traders who smuggle. The empirical results suggest: (i) that a substantial volume of resources was allocated to rent seeking (5.3 % of GDP) on rice imports alone in 1986, and (ii) econometric results confirm that the short-run output response of coffee producers depends on other factors rather than the official (marginal) price of their output on its own