University of Wisconsin-Madison
Department of Agricultural and Applied Economics
Development Economics Preliminary Examination
August 23-27 2004
Answer any three questions. All questions have equal weight. Please type your answers.
Your answers must be submitted to Ian Coxhead, Development Prelim Chair, 413 Taylor
Hall no later than 5 pm on Friday, August 27.
1. Nola Reinhardt [Our Daily Bread: The Peasant Question and Family Farming in the
Columbian Andes (California 1988)] suggests that the (hyper-) productivity of
peasant agriculture is ultimately rooted in patriarchal control over family labor power.
This question asks you to analyze Reinhardt's suggestion in the context of the intrahousehold bargaining literature.
Consider the following model of agricultural production:
Q = Q(|H),
 = F + e(F/H)Ld, where e<1 and e ( F / H )  0
F= Lmh  Lhf
where Q is agricultural output, H is the household's fixed land stock,  is labor
measured in efficiency units, F is family labor and Ld is hired labor. Family labor (in
efficiency terms) is the sum of male and female time allocated to the home production
process. Male and female labor time (each person has a time endowment of L0) is
allocated between home production and a “thin” local labor market, yielding the
following time constraints:
Lih  Liw  L0 , i  m, f
Days allocated to the wage labor market ( Liw , i  m, f ) are employed for G( Liw ) days
where 0  G Lw  1 and  2G L2w  0 . In other words, an individual supplying
Liw units of labor to the labor market would earn wG( Liw ), where w is the
parametrically given wage at which labor is bought and sold. Please feel free to make
any additional assumptions that might be needed for your modeling.
(a) Analyze the relationship between farm productivity (Q/H) and size assuming that
the household maximizes the male’s utility defined as:
U[xm],
where male and female consumed commodities (xm and xf, respectively) are
purchased subject to the budget constraint:
p(xm+ xf) < (Q -wLd) + (w G( Lmw ) +w G( Lwf );
and the maximization is carried out subject to the non-negativity restrictions
( Liw , Liw , Ld > 0) and the constraints listed above. Note that in addition to the
utility function, this problem is patriarchical in the sense that the benevolent
dictator is assumed able to control the allocation of time by all agents without any
agency costs.
(b) Suppose now that women gain voice and control over their time and income
which they earn. You may wish to assume that residual income produced with H
is the property of the man and that labor income is the property of the person who
earns it. Write down a bargaining model for this time allocation problem. What
does your model imply about the relationship between farm productivity and size?
(c) Is Reinhardt right according to your model? That is, what does your model
implies happens to the relationship between farm size and productivity if women
status increases as modeled in part (b)?
(d) How well do your models in parts (a) and (b) conform with the empirical
literature on intra-household resource allocation, including contributions that
explore the allocation of resources in both production and consumption?
2. Formal insurance contracts are rarely available to permit agricultural households to
protect themselves against variation in income resulting from weather or price shocks.
In contrast, informal or mutual insurance arrangements are commonly observed in
many parts of the world. For purposes of this question, assume that an informal
insurance arrangement is one in which terms of the arrangement cannot be enforced
through legal means.
(a) What are the incentive compatibility conditions that limit or constrain the
formation of mutual insurance arrangements? To answer this question, you may
want to devise a simple 2-person model of mutual insurance that can be used to
illustrate the factors that shape incentive compatibility. Please reflect on part (b)
below before devising your model.
(b) Imagine that agents are heterogeneous (e.g. they differ by wealth, social or ethnic
group, etc.). Are some types of agents likely to be excluded from mutual
insurance arrangements, or unable to gain as much insurance as other agents? In
answering this question, please rely on the model that you developed in part (a).
How do the implications of your model compare with results from the empirical
literature that has estimated the effectiveness of mutual insurance?
(c) What are the long-run implications of differential access to mutual insurance? In
answering this question, you do not need to do any additional modeling.
However, please draw on relevant literature to help frame your thinking on this
question.
3. In “National policies and economic growth: a reappraisal” (Handbook of Economic
Growth, forthcoming; http://www.nyu.edu/fas/institute/dri/File/DRIW1.pdf) William
Easterly rejects claims by World Bank researchers that policy reforms in developing
countries could accelerate growth and cut poverty. He argues instead that the
statistical significance of associations between national policies and growth results
rely on extreme values and moreover, “The [econometric] evidence suggests that
macroeconomic policies do not have a significant impact on development after
accounting for the impact of institutions” (p. 57). This view echoes a 2003 statement
by Arnold Harberger: “When you get right down to business, there aren’t too many
policies that we can say with certainty deeply and positively affect growth” (cited in
Rodrik, “Growth strategies”, NBER WP # 10050, 2003), and several other
contemporaneous studies, including Rodrik’s NBER paper itself.
(a) Evaluate Easterly’s claim by reference to empirical analyses of economic growth.
Is there any means by which to explain or to reconcile this econometric
agnosticism with the many theoretical models– including one presented by
Easterly himself in the 2003 paper– which show direct links between policies and
growth?
(b) Consider the implications of Easterly’s claim for attempts to promote long-run
economic development. Are there any robust general policy prescriptions for
sustaining growth? Present and defend your answer(s) to this question in the form
of advice to national policy makers or to the key decision-makers in a multilateral
institution such as the World Bank.
4. Imagine that a major environmental organization requests your help in designing a
project aimed at identifying types of agricultural technologies that can promote
conservation and development in tropical forest areas. Specifically, they want
agricultural technologies that raise incomes of farmers and reduce deforestation at the
same time. Suppose further that they include in their request help for two distinct
types of tropical forest locations: (a.) Frontier areas with significant recent migration
(colonist) inflows, and (b.) Settled areas with established communities, fragmented
peasant households, and surrounding tropical forest mountains (the environmental
area of concern). Propose a household-level model (or a second with variations on
the first) that can be used to explore the impacts of the agricultural technologies listed
below in these situations. Be specific about your choice of key assumptions in the
design of the model (i.e, the characteristics of the technology, the completeness of
markets). Also, be clear on your assumptions regarding what might be considered
immediate effects and longer-term effects of these technologies. After you have
explored the predicted impacts of the technologies, briefly discuss their implications
for the basic type of empirical design you would suggest for testing the hypotheses
predicted by the models.
Agricultural technologies under exploration:
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Improved pasture for cattle
High yielding grain varieties (e.g., corn or rice)
Permanent tree crops (e.g., cocoa, coffee, coca, citrus)
Organic vegetables