Rural credit in developing countries

Subsidized formal credit to the agricultural sector has been advocated as more efficient, equitable, and easier to implement than, say, land reform. But the record on subsidized credit to farmers is dismal. It shows a significant failure either to achieve an increase of agricultural output cost-effectively or to improve rural income distribution and alleviate poverty. Many of the financial institutions have proven to be inept and to lack accountability. Common features of the success stories are tougher stands on default; strict auditing and accounting procedures and financial control; and some form of joint responsibility or liability by small groups of farmers, whereby default by one member cancels future loans to the whole group.Banks&Banking Reform,Environmental Economics&Policies,Economic Theory&Research,Financial Intermediation,Insurance&Risk Mitigation

Credit rationing, tenancy, productivity, and the dynamics of inequality

Why, when given the same resources, might productivity be lower on farms operated through sharecropping than on owner-run farms? The reason is that sharecropping, much less wage contracts, cannot overcome the divergence of interests between those who till the land and those who own it. Only land redistribution can do that. This paper presents notes toward a general equilibrium theory of land tenancy that suggest how changes in technology and publicly provided infrastructure can affect the equilibrium distribution of land in countries where credit is rationed. When credit to famers is rationed, changes in technology can increase the inequality in landholdings - with a long term increase in share tenancy. This is turn might reduce productivity, at least partially offsetting the initial improvements. The paper suggests that the development of effective rural financial institutions would reduce the likelihood of these negative effects on equality and productivity. It further cautions though that past attempts in creating such institutions have failed because of a lack of accountability and of enforcement procedures.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Economic Growth,Municipal Financial Management

Institutional aspects of credit cooperatives

The most common form of government intervention in the rural sector has been massive lending at subsidized interest rates. Credit programs generally aim to reach small farmers. However, despite the expansion of credit over the last three decades, few farmers in low income countries seem to have received or benefited from such credit. It has thus been common for small-scale farmers to resort to the formation of organized credit groups or cooperatives. This paper is a normative analysis of cooperatives viewed as institutions to improve the plight of small-scale farmers. The purpose is to analyze which structures are most successful, then to promote credit cooperatives and to design an optimal incentive scheme in place of subsidized credit policies of the past. The paper concludes by stating that a policy of providing assistance to existing and potential credit groups on how to set incentives, implement monitoring schemes and develop centralized resources is more desirable and more cost effective than the old fashioned and largely regressive subsidized credit policies.Banks&Banking Reform,Strategic Debt Management,Economic Theory&Research,Environmental Economics&Policies,Insurance&Risk Mitigation

Agricultural reform in developing countries : reflections for Eastern Europe

The reform of formerly centrally planned economies involves freeing the price system, developing a competitive environment, and privatizing many of the state-owned or controlled assets and services, while simultaneously generating the social, economic and legal infrastructure that undergrids a market economy. This paper takes an important look at what the reforming countries of Eastern Europe can and cannot learn from the developing countries, including discussions on: (a) reforming prices; (b) credit, financial institutions and marketing boards; (c) property rights, land tenure and privatization; (d) research, extension and technology; and (e) efforts to remediate environmental degradation. A central dilemma in the reform of the Eastern European economies is the tension between commitment and flexibility. Western technical assistance and international financial help can be effective only if professionals of the East and West work together, as this is a process of joint learning, not a pure transfer of knowledge.Environmental Economics&Policies,Economic Theory&Research,Banks&Banking Reform,Markets and Market Access,Access to Markets

On the Computational Power of Radio Channels

Radio networks can be a challenging platform for which to develop distributed algorithms, because the network nodes must contend for a shared channel. In some cases, though, the shared medium is an advantage rather than a disadvantage: for example, many radio network algorithms cleverly use the shared channel to approximate the degree of a node, or estimate the contention. In this paper we ask how far the inherent power of a shared radio channel goes, and whether it can efficiently compute "classicaly hard" functions such as Majority, Approximate Sum, and Parity. Using techniques from circuit complexity, we show that in many cases, the answer is "no". We show that simple radio channels, such as the beeping model or the channel with collision-detection, can be approximated by a low-degree polynomial, which makes them subject to known lower bounds on functions such as Parity and Majority; we obtain round lower bounds of the form Omega(n^{delta}) on these functions, for delta in (0,1). Next, we use the technique of random restrictions, used to prove AC^0 lower bounds, to prove a tight lower bound of Omega(1/epsilon^2) on computing a (1 +/- epsilon)-approximation to the sum of the nodes\u27 inputs. Our techniques are general, and apply to many types of radio channels studied in the literature

Landlords, Tenants, and Technological Innovations

Shows that the institutional structure of the economy may be an important determinant of whether a particular innovation will or will not be adopted in less developed countries (LDC). Use of sharecropping contracts by LDC; Adoption of innovation resulting in lower welfare of workers and lower net national product; Impact of the linkage between credit and tenancy markets on the adoption of technology

Agriculture and the transition to the market

Agricultural sectors in Eastern and Central Europe are large so that changes in producer prices, farm employment, and land ownership affect substantial numbers of people. In the past, food in the region was politicized. For decades, governments of Eastern European countries and the USSR offered their citizens stable, subsidized food prices and a steadily improving diet in an effort to demonstrate the superiority of communism over capitalism. During the transition, the context has changed, but food remains politicized. Many consumers in the region are ill-prepared to pay the real costs of food, which are quite high. The task of reducing those costs will be difficult, involving restructuring of farms and fostering competition in processing and distribution. Management of the agricultural transition will affect the political sustainability of the process and influence agriculture's contribution to the growth of emerging market economies. Although the agricultural sector of Eastern and Central Europe is large, Soviet agriculture dwarfs it in its impact on the region and the world. A positive program to stop the decline in Soviet agriculture could contribute to economic growth and political stability. Failure to remedy the fundamental flaws in Soviet agriculture will speed the country's slide into poverty and ethnic turmoil - and undermine the efforts of Central and Eastern Europeans to succeed.Access to Markets,Environmental Economics&Policies,Economic Theory&Research,Agricultural Knowledge&Information Systems,Markets and Market Access

Costs and benefits of agricultural price stabilization in Brazil

In recent years, agricultural price stabilization policies have been recommended in Brazil as a way to reduce government intervention and open the sector for international trade without internalizing the instability of world prices. The proposal discussed (and eventually implemented in 1987) was to establish a system of price bands around a moving average of past prices, with the government relying on stocks to defend the bands. The authors evaluated the"band proposal"for six commodities, using historical data and posing this question: what would have happened if price bands had been adopted in the past six to ten years (compared with free trade)? There were two major findings. First, the implications of adopting a band-rule policy depend heavily on the specific characteristics of the commodities. Second, the welfare gains for risk reduction through agricultural price stabilization are unlikely to be large relative to the welfare gains from price reform that reduces market distortions for these six agricultural commodities. More research into the macroeconomic implications of price stabilization policies is necessary, particularly in countries with unstable but moderate rates of inflation.Environmental Economics&Policies,Economic Theory&Research,Markets and Market Access,Access to Markets,Insurance&Risk Mitigation