The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

Economics has much to do with incentives--not least, incentives to work hard, to produce quality products, to study, to invest, and to save. Although Adam Smith amply confirmed this more than two hundred years ago in his analysis of sharecropping contracts, only in recent decades has a theory begun to emerge to place the topic at the heart of economic thinking. In this book, Jean-Jacques Laffont and David Martimort present the most thorough yet accessible introduction to incentives theory to date. Central to this theory is a simple question as pivotal to modern-day management as it is to economics research: What makes people act in a particular way in an economic or business situation? In seeking an answer, the authors provide the methodological tools to design institutions that can ensure good incentives for economic agents. This book focuses on the principal-agent model, the "simple" situation where a principal, or company, delegates a task to a single agent through a contract--the essence of management and contract theory. How does the owner or manager of a firm align the objectives of its various members to maximize profits? Following a brief historical overview showing how the problem of incentives has come to the fore in the past two centuries, the authors devote the bulk of their work to exploring principal-agent models and various extensions thereof in light of three types of information problems: adverse selection, moral hazard, and non-verifiability. Offering an unprecedented look at a subject vital to industrial organization, labor economics, and behavioral economics, this book is set to become the definitive resource for students, researchers, and others who might find themselves pondering what contracts, and the incentives they embody, are really all about.

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The Theory of Incentives: The Principal-Agent Model

Land policies are of fundamental importance to sustainable growth, good governance, and the well-being of, and the economic opportunities open to, both rural and urban dwellers - particularly the poor. To this end, research on land policy, and analysis of interventions related to the subject, have long been of interest to the Bank's Research Department, and other academic, and civil society institutions. The report aims to strengthen the effectiveness of land policy in support of development, and poverty reduction, by setting out the results of recent research in a way that is accessible to a wide audience of policymakers, nongovernmental organizations, academics in the Bank's client countries, donor agency officials, and the broader development community. Its main message rests on three principles: 1) provision of secure tenure to land improves the welfare of the poor, particularly by enhancing the asset base of those whose land rights are often neglected, and, creates incentives needed for investment, paramount to sustainable economic growth; 2) facilitation of land exchange, and distribution, whether as an asset or for current services, at low cost, through markets, and non-market channels, will expedite land access by productive, but land-poor producers, so that once economic growth improves, financial markets would rely on the use of land as collateral; and, 3) governments' contribution to the promotion of socially desirable land allocation, and utilization. The report discusses mechanisms to promote tenure security, demonstrates the importance of rental market transactions, arguing the removal of impediments to these can generate equity advantages, and positive investments. It also illustrates mechanisms, ranging from taxation, to regulation and land use planning to address these issues.

Land policies for growth and poverty reduction

Toward a Comparative Institutional Analysis

The northern California town of Mendocino, which was the shooting background for the film “East of Eden” starring James Dean, retains some of the air of its late nineteenth century role as a harbor to ship out lumber cut from the mountainsides. Ex-hippies-turned-farmers and artists live in the surrounding area. In the latter half of the 1990s, we rented a house facing the Pacific Ocean from an artist every summer. My wife and daughters went back and forth to Stanford for their activities, but I burrowed myself there for the summer with our dog Robin, brought back with us from Japan, and focused on writing my survey on comparative institutional analysis: Toward a Comparative Institutional Analysis (MIT Press, 2001). Mornings and evenings I took Robin for a walk on the cape where there was a greater than 180 ° view. In the morning, the horizon was veiled in fog, while in the evening the ocean was tinted red by the setting sun. It was the perfect place for rethinking problems and reorganizing chapters. Robin was a small mixed breed with some Shikoku-ken, but she was stubborn and at times got into fights with a large Coast Guard officer’s watch dog. My family enjoyed meals made from the organic produce we bought at the farmers’ market (so many varieties of tomatoes); we also went to the harbor to buy albacore tuna and fresh sea urchin still in its thorny shell.

One of the often noted features of less-developed agrarian economies is the existence of interlinkages among the land, labor, credit, and product markets. The landlord is often the supplier of credit; he frequently purchases and markets the output of the tenant farmers, and often sells raw materials and even consumption goods to his tenant farmers. How can this phenomenon be explained? What are the welfare consequences of attempts to restrict these practices, which often seem to constitute restraints on free trade? These are the questions to which this paper is addressed. A general set of arguments applicable to both competitive and noncompetitive environments are presented, to situations where all the terms of the contract are determined in an optimal way as well as to situations where many of the terms are specified institutionally. Section I examines interlinked credit and tenancy contracts; Section II examines interlinked marketing and tenancy contracts; Section III points out the possible interlinking between labor contracts and consumption goods markets; and Section IV presents the different equilibrium frameworks discussed in the paper, such as monopoly, monopsony, competition, and equilibria with surplus labor.

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Sharecropping and the Interlinking of Agrarian Markets

https://www.econstor.eu/bitstream/10419/160295/1/cdp370.pdf

Credit and sharecropping in agrarian societies

A general model is presented for studying the connection between imperfect information and imperfect competition, comparing the methodology involved in generating monopolistic competition due to consumers' imperfect information with the methodology involved in generating monopolistic competition due to product differentiation. The model specifically shows how different monopolistically competitive equilibria may arise from consumers' imperfect information regarding different prices of a homogeneous commodity. Under such a structure, there is no longer one market place, each firm may constitute a local market, and different consumers with different search costs may equilibrate the market at different prices. The nature of the differences in consumers' search costs determine what type of an equilibrium arises: a pefectly competitive, a monopolistically competitive, or a two-price equilibrium. There is need for a dynamic model that deals with the problems of maintained ignorance and the possibility of a firm's acquiring a price reputation over time.

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Consumer search and alternative market equilibria

This paper explains the rationale and describes the characteristics of cost sharing arrangements in rural developing economies, focusing on the risk and incentive properties of alternative cost contracts and on their flexibility—their ability to adapt to environmental changes. It is shown that where labor inputs are difficult to monitor, the rule that cost shares and output shares be equalized will not hold and is not "constrained pareto efficient," and that cost-sharing contracts have a decided advantage over contracts which specify the level of inputs whenever there are asymmetries of information regarding production technology between the landlord and the tenant.

/pdf/cost-sharing-arrangements-under-sharecropping-moral-hazard-2gh172po85.pdf

Cost-Sharing Arrangements under Sharecropping: Moral Hazard, Incentive Flexibility, and Risk

https://academiccommons.columbia.edu/doi/10.7916/D82V2S2F/download

Avishay Braverman

Papers

Sharecropping and the Interlinking of Agrarian Markets

Credit and sharecropping in agrarian societies

Consumer search and alternative market equilibria

Cost-Sharing Arrangements under Sharecropping: Moral Hazard, Incentive Flexibility, and Risk

Landlords, Tenants, and Technological Innovations