Browsing through Inquirer I saw this. So would the proposed free trade agreement with Japan lead to free entry of Japanese fleets into Philippine waters? I'd never heard of this argument. Intrigued, I downloaded the full text here (care of PCIJ). I even went to the Junk JPEPA blog to see where I could find fishing access anywhere in the Agreement. The claim is bodacious:
"JPEPA through Articles 28 and 29 of Chapter 3 allows unhampered access Japanese fishing industry to Philippine EEZ."
In reality, Chapter 3 is about defining "rules of origin", i.e. how does a product get to be classified as "made in the Philippines" or "made in Japan" and get free trade treatment. (Given that a lot of foreign inputs may be used, the classification is not trivial). Article 29 says we can classify goods like fish as Filipino-made, even though they were caught outside our territorial waters, as long as a Filipino fleet owns them. It adds furthermore: "Nothing in this sub-paragraph shall affect the rights and obligations of the Parties under International Law, including under the United Nations Convention of the Law of the Sea." Absolutely, the Philippines retains its rights to the Exclusive Economic Zone under the UNCLOS.
So why the qualification? Simple: when we import a fish from Japan caught in say Chinese waters, and give it duty-free status because it was caught by a Japanese ship, we don't want to be entangled with legal problems with China who could dispute the legality of Japan's incursion into Chinese waters. We don't accept the fish was caught legally, but under the treaty we would still give it duty-free status.
What is behind this staggering falsehood of natural resource plunder by Japanese fleets? I don't know. I just hope the debates in the Senate are not conducted at this level of analysis. If this is the norm, we're done for.
Saturday, November 24, 2007
Tuesday, November 20, 2007
Sunday, November 18, 2007
The bankruptcy of the "alternative development" paradigm: an outline
I've always wanted to write a definitive essay refuting the "alternative" development paradigm adopted by leftwing intellectuals and pseudo-economists. But I seldom write long essays for fun, mainly because they aren't. And this kind of paper cannot possibly have an original bone in its body. So I haven't gone beyond the outlining stage, as follows:
- Thesis
The axis of evil: fascism, feudalism, capitalism. Global capitalism as imperialism. The faces of domestic oligarchy. Alternatives: protection, nationalization, expropriation, industrialization.
- Antithesis
The critical dichotomy: exchange relations and property relations. Booty capitalism and transformative capitalism. Pitfalls of the alternative strategy.
- Synthesis
Transformative capitalism. Equity as a necessity. Conclusion: the grave irony.
Pragmatic considerations regarding the death penalty
One of the reasons for opposing the death penalty is the probability of executing an innocent person. Suppose our policy choice regarding the death penalty has the objective of minimizing wrongful deaths, which is the sum of private murders and mistaken executions (which is tantamount to murder). A numerical example will help fix ideas: consider a population of 10 million identical persons. Over a given period, the probability of any one committing murder is = 0.00002; then the expected number of murders is 200. With a death penalty, the probability of comitting a murder drops, say to 0.00001; then the expected number of murders is 100. Suppose the probability of obtaining a conviction is 0.5, for which the probability of a mistaken execution is a high 0.1. Then without the death penalty, the expected number of wrongful deaths is 200 + 0 = 200; with the death penalty, the expected number of wrongful deaths is 100 + (100 * 0.5*0.1) = 105. The deterrent effect would have to be really small, i.e. a difference of 0.0000009 in the probability of committing murder, for the expected avoidable deaths to be equal between the with- and the without-death penalty scenarios. In short, wrongful execution requires an actual murder and a conviction, hence this will be a very small number relative to the population, and a small number even relative to the expected number of murders.
Put in another way: by not imposing the death penalty, the State is allowing 95 more wrongful deaths, but itself inflicting none. State without a death penalty would seem to be one in which the weight of a publicly-sanctioned wrongful death is much, much greater than the weight of a privately-committed wrongful death. Is there a good justification for such a weight?
Put in another way: by not imposing the death penalty, the State is allowing 95 more wrongful deaths, but itself inflicting none. State without a death penalty would seem to be one in which the weight of a publicly-sanctioned wrongful death is much, much greater than the weight of a privately-committed wrongful death. Is there a good justification for such a weight?
Friday, November 16, 2007
Thoughts of a young economist
Written just after the contentious period of debate on approval of the Uruguay Round. These days the term "booty capitalism" is more common. Otherwise, still my thoughts on the matter.
Oh yes, if you know the joke, this means that I have no heart.
With the issue of the GATT, the fragmented Philippine left found reason to unite. A common theme in their arguments against ratification was the specter of global capitalism tightening its hold on less developed economies with their integration into the world trading system. Instead of integration, they advocate a return to the "nationalist" strategy based on extensive State intervention, emphasizing controls on imports and foreign investments, selective and generous incentives for heavy industries (steel is a special favorite), cheap foreign exchange, and similar measures.
Unfortunately, their critique of global capitalism and their program of State-sponsored industrialization suffer from a complete misunderstanding of the foundations and dynamics of capitalism. The recent approval fo the GATT is thus regarded as a betrayal of "the people", rather than what it truly is: an opportunity for economic advancement.
Capitalism operates on the dynamic of exchange or market relations made possible by stable property relations. These exchange relations, as they are voluntary, are to the mutual benefit of the transacting parties. If I buy imported sugar, it is beneficial to me, as well as to the foreign sugar grower (but probably not to the domestic sugar planter). Naturally, the process of exchange organizes and improves production. For example, with free trade resources devoted to import-competing sugar may be reallocated export crops, which are sold in more lucrative foreign markets.
However, to teh extent that the State engages in market restrictions, there is an opportunity to accumulate wealth, not by innovating a superior organization of production, but by appropriate the coercive power of the State. For example, domestic sugar planeters may lobby to restrict the entry of cheap foreign sugar; Filipino consumers are coerced into accepting less beneficial trades with these planters. Capitalism, in its free exchange form, organizes and advances production and is therefore a benevolent force. (It's distribution of society's output is, however, only as equitable as the existing property relations.) On the other hand, capitalism which employs State coercion is the foe of economic progress; it is the backbone of a backward conservatism.
It is this reactionary conservatism of a protected few which is most interested in rejecting agreements which restrain State coercion, as the GATT. Ironically, this conservatism is precisely what radicals unanimously advocate, whatever their differences on other issues. All this in the name of "the people."
I do not question the sincerity of the radicals; what they suffer from is a mistaken identification of capitalism in the Philippines as a manifestation of exchange capitalism, rather than what it truly is - coercive capitalism. Mass poverty and underdevelopment are blamed on exchange capitalism, rather than coercive capitalism and unjust property distribution (the heritage of a feudal and colonial past).
In a world where central planning has been totally abandoned, trade barriers are falling and exchange capitalism is replacing structures of coercion, perhaps it is not only the veteran ideologues who are victims of this tragic irony. Unfortunately, the youth and studentry by and large remain captivated by an obsolete mode of analysis (one needs only read many of the other column pieces appearing in this space. If instead the energies of these idealists were directed toward opposing coercive capitalism, as well as toward advocating justice in property relations (such as redistributive land reform), they might yet live up to their vehement profession of being "pro-people."
- Philippine Daily Inquirer, Youngblood, 27 December 1994, p.7; byline corrected December 28, p. 8.
Much later I had another column in Business World, August 20, 2002. But that one has an electronic copy. I've had a few other columns, but the rest are crap.
Oh yes, if you know the joke, this means that I have no heart.
With the issue of the GATT, the fragmented Philippine left found reason to unite. A common theme in their arguments against ratification was the specter of global capitalism tightening its hold on less developed economies with their integration into the world trading system. Instead of integration, they advocate a return to the "nationalist" strategy based on extensive State intervention, emphasizing controls on imports and foreign investments, selective and generous incentives for heavy industries (steel is a special favorite), cheap foreign exchange, and similar measures.
Unfortunately, their critique of global capitalism and their program of State-sponsored industrialization suffer from a complete misunderstanding of the foundations and dynamics of capitalism. The recent approval fo the GATT is thus regarded as a betrayal of "the people", rather than what it truly is: an opportunity for economic advancement.
Capitalism operates on the dynamic of exchange or market relations made possible by stable property relations. These exchange relations, as they are voluntary, are to the mutual benefit of the transacting parties. If I buy imported sugar, it is beneficial to me, as well as to the foreign sugar grower (but probably not to the domestic sugar planter). Naturally, the process of exchange organizes and improves production. For example, with free trade resources devoted to import-competing sugar may be reallocated export crops, which are sold in more lucrative foreign markets.
However, to teh extent that the State engages in market restrictions, there is an opportunity to accumulate wealth, not by innovating a superior organization of production, but by appropriate the coercive power of the State. For example, domestic sugar planeters may lobby to restrict the entry of cheap foreign sugar; Filipino consumers are coerced into accepting less beneficial trades with these planters. Capitalism, in its free exchange form, organizes and advances production and is therefore a benevolent force. (It's distribution of society's output is, however, only as equitable as the existing property relations.) On the other hand, capitalism which employs State coercion is the foe of economic progress; it is the backbone of a backward conservatism.
It is this reactionary conservatism of a protected few which is most interested in rejecting agreements which restrain State coercion, as the GATT. Ironically, this conservatism is precisely what radicals unanimously advocate, whatever their differences on other issues. All this in the name of "the people."
I do not question the sincerity of the radicals; what they suffer from is a mistaken identification of capitalism in the Philippines as a manifestation of exchange capitalism, rather than what it truly is - coercive capitalism. Mass poverty and underdevelopment are blamed on exchange capitalism, rather than coercive capitalism and unjust property distribution (the heritage of a feudal and colonial past).
In a world where central planning has been totally abandoned, trade barriers are falling and exchange capitalism is replacing structures of coercion, perhaps it is not only the veteran ideologues who are victims of this tragic irony. Unfortunately, the youth and studentry by and large remain captivated by an obsolete mode of analysis (one needs only read many of the other column pieces appearing in this space. If instead the energies of these idealists were directed toward opposing coercive capitalism, as well as toward advocating justice in property relations (such as redistributive land reform), they might yet live up to their vehement profession of being "pro-people."
- Philippine Daily Inquirer, Youngblood, 27 December 1994, p.7; byline corrected December 28, p. 8.
Much later I had another column in Business World, August 20, 2002. But that one has an electronic copy. I've had a few other columns, but the rest are crap.
Wednesday, November 14, 2007
The price of oil is telling us something
The record levels that oil price has recently hit is surprising; the fact that oil price has been rising over time, is not. Way back in 1931, the economist Harold Hotelling argued that prices of exhaustible resources should be rising over time. His fundamental equation (in modified form) states that:
Growth rate of net resource price = discount rate.
The net resource price is simply the market price of the resource, less the marginal cost of extraction. The discount rate is the "rate of time preference". It is the amount by which the subjective value of one peso falls if it is received next period, rather than now. This can be proxied by the interest rate. An alternative way to express this is:
Net resource price now = (1 + discount rate) x (Net resource price last period).
Extracting one unit of the resource now rather than a while ago, requires that the net price now exceed the previous net price by the rate of time preference. If the marginal cost of extraction is constant, then the net price will rise only if the market price rises.
Short-run price increases can be explained by rising demand, or rising marginal costs of extraction, or both. Because of this, the oil market appears to have undergone a permanent upward shift in the trend line. Speculative forces also introduce short-term volatility in oil prices. Nevertheless, Hotelling's equation supposedly captures the slope of that long term trend line.
The story however does not end there. Rising prices signal to consumers (and producers) to adjust their activities by searching for relatively cheaper substitutes. Hence the search for renewable energy sources to replace oil, at least at the margin. The price signal - and consequent behavior adjustment - is precisely what averts a "collapse" in consumption as the resource is finally exhausted.
Unfortunately our baser instincts drive us to interfere with this economic process. Through our government, we want those greedy oil companies to profit less. We also accept interventions to impose "energy conservation", like banning this or that "frivolous" use of energy (Christmas lights, driving at the speed limit, etc.) This is a lot of wasted energy (pun intended). And taxing away those profits tells oil companies to shy away from risky ventures like oil exploration - precisely the set of activities needed to keep price growth in check. Ultimately some want the government to own all the oil companies - yeah, like that's gonna work.
I'm not saying that all intervention is bad. Market failures may justify some interventions, say in research and development, setting up infant renewable resource industries, imposing a tax on carbon emissions, and so on. But the distinction between bad and good intervention is subtle. Too often it vanishes in the scramble to appear to do something, anything, against $100 oil. Folks, let that $100 sign tell you what to do.
Growth rate of net resource price = discount rate.
The net resource price is simply the market price of the resource, less the marginal cost of extraction. The discount rate is the "rate of time preference". It is the amount by which the subjective value of one peso falls if it is received next period, rather than now. This can be proxied by the interest rate. An alternative way to express this is:
Net resource price now = (1 + discount rate) x (Net resource price last period).
Extracting one unit of the resource now rather than a while ago, requires that the net price now exceed the previous net price by the rate of time preference. If the marginal cost of extraction is constant, then the net price will rise only if the market price rises.
Short-run price increases can be explained by rising demand, or rising marginal costs of extraction, or both. Because of this, the oil market appears to have undergone a permanent upward shift in the trend line. Speculative forces also introduce short-term volatility in oil prices. Nevertheless, Hotelling's equation supposedly captures the slope of that long term trend line.
The story however does not end there. Rising prices signal to consumers (and producers) to adjust their activities by searching for relatively cheaper substitutes. Hence the search for renewable energy sources to replace oil, at least at the margin. The price signal - and consequent behavior adjustment - is precisely what averts a "collapse" in consumption as the resource is finally exhausted.
Unfortunately our baser instincts drive us to interfere with this economic process. Through our government, we want those greedy oil companies to profit less. We also accept interventions to impose "energy conservation", like banning this or that "frivolous" use of energy (Christmas lights, driving at the speed limit, etc.) This is a lot of wasted energy (pun intended). And taxing away those profits tells oil companies to shy away from risky ventures like oil exploration - precisely the set of activities needed to keep price growth in check. Ultimately some want the government to own all the oil companies - yeah, like that's gonna work.
I'm not saying that all intervention is bad. Market failures may justify some interventions, say in research and development, setting up infant renewable resource industries, imposing a tax on carbon emissions, and so on. But the distinction between bad and good intervention is subtle. Too often it vanishes in the scramble to appear to do something, anything, against $100 oil. Folks, let that $100 sign tell you what to do.
Wednesday, November 07, 2007
The scarcity of oil runneth over
Once energy was cheap - cheap enough that the idea of growing plants for their energy seemed absurd. Obviously, plants are grown mostly for food. For thousands of years thus it has been, so shall it ever be.
But now energy is dear - dear enough that some plants in some places can be profitably grown for energy, creating biofuels. This takes space and other resources away from growing plants for food. The old conventions are being abolished. The agricultural landscape has been permanently altered.
Much to the discomfort of many. The idea of farming to feed cars is somehow deplorable compared to farming to put food on the table. But this is knee-jerk alarmism. Consider:
1. If the criterion is getting the most quantity of food out of given farmland, then even now we are not doing it. The reason? We eat animals. And animals need to be fed. Either with plant feed - which often takes away land for growing food for direct consumption - or worse, other animals, which themselves need to eat plants. And the feed conversion ratio is (aside from poultry) is much higher than 1 (reaching up to 8 in the case of ruminants). Anybody complaining about the corn we feed to hogs rather than directly to people?
Come to think of it, everytime we set up a shopping mall, a parking lot, a school, a laboratory, we are taking away land that could be used for farming. Bad for "food security". Tsk, tsk.
2. There are a lot of distortions introduced by policies. Particularly notorious are the biofuels incentives in the US, which artificially makes it profitable for some US farmers to plant for energy rather than food. Take away these incentives and we'll see a lot less of this diversion from food to fuel. Rather other options may be explored, such as growing energy crops on marginal lands. (There is some promise from crops such as sweet sorghum and Jatropha plant for such options.)
3. Food will get more expensive. Bad for consumers. But this is good for farmers. Without deeper analysis, we can't tell whether the net effect is anti-poor.
My best guess is, biofuels will play a role in the overall energy mix, but not a major one (at least within the energy sector). However within the food sector the emergence of biofuels will have long term implications for the trend in future food prices. The era of cheaper and cheaper food is over, as well.
But now energy is dear - dear enough that some plants in some places can be profitably grown for energy, creating biofuels. This takes space and other resources away from growing plants for food. The old conventions are being abolished. The agricultural landscape has been permanently altered.
Much to the discomfort of many. The idea of farming to feed cars is somehow deplorable compared to farming to put food on the table. But this is knee-jerk alarmism. Consider:
1. If the criterion is getting the most quantity of food out of given farmland, then even now we are not doing it. The reason? We eat animals. And animals need to be fed. Either with plant feed - which often takes away land for growing food for direct consumption - or worse, other animals, which themselves need to eat plants. And the feed conversion ratio is (aside from poultry) is much higher than 1 (reaching up to 8 in the case of ruminants). Anybody complaining about the corn we feed to hogs rather than directly to people?
Come to think of it, everytime we set up a shopping mall, a parking lot, a school, a laboratory, we are taking away land that could be used for farming. Bad for "food security". Tsk, tsk.
2. There are a lot of distortions introduced by policies. Particularly notorious are the biofuels incentives in the US, which artificially makes it profitable for some US farmers to plant for energy rather than food. Take away these incentives and we'll see a lot less of this diversion from food to fuel. Rather other options may be explored, such as growing energy crops on marginal lands. (There is some promise from crops such as sweet sorghum and Jatropha plant for such options.)
3. Food will get more expensive. Bad for consumers. But this is good for farmers. Without deeper analysis, we can't tell whether the net effect is anti-poor.
My best guess is, biofuels will play a role in the overall energy mix, but not a major one (at least within the energy sector). However within the food sector the emergence of biofuels will have long term implications for the trend in future food prices. The era of cheaper and cheaper food is over, as well.
Saturday, October 27, 2007
"Mechanism design" is not about making clocks
I was waiting for the Economist to put in its obligatory piece on the latest Nobel Memorial Prize in Economics. (The qualifier "Memorial" is there to pay tribute to the hardcore sciences of physiology, chemistry, and physics, which are the original Nobel Prizes.) At last I have something to free-ride on.
In my line of work "incentive compatibility" crops up frequently - it means that we should expect an agent to behave consistent with her incentives. Incentive compatibility is one of the keystones of mechanism design. It may sound trivial, but responses to incentives are naively ignored, say, in government policy. If for instance government is so distressed by rampant smuggling, perhaps in ought to wonder whether all those import restrictions actually spawned incentives for evasion (i.e. by creating a premium of the domestic price over the world price). Or that tax exemptions on dependents is not going to help curb the fertility rate. Examples can be multiplied. And don't get me started over the pardon of former President Estrada.
In my line of work "incentive compatibility" crops up frequently - it means that we should expect an agent to behave consistent with her incentives. Incentive compatibility is one of the keystones of mechanism design. It may sound trivial, but responses to incentives are naively ignored, say, in government policy. If for instance government is so distressed by rampant smuggling, perhaps in ought to wonder whether all those import restrictions actually spawned incentives for evasion (i.e. by creating a premium of the domestic price over the world price). Or that tax exemptions on dependents is not going to help curb the fertility rate. Examples can be multiplied. And don't get me started over the pardon of former President Estrada.
Saturday, October 20, 2007
Trauma
Many in Manila consider Glorietta one of their favorite haunts. Years pass without incident, and soon, like our own home, such places acquire an aura of impenetrability. That is gone now. Horror has pierced clean through. You go down an escalator, ponder over the items you've seen on sale, match the colors and parties in your mind, blink, and the blast changes everything. On one end your life is taken - and so it was for nine people. On the other, you flee for your life at the crumbling debris. In between is a spectrum of injury. Some of you will need only stitches. Others will lose an arm, a leg, an eye, a face.
But whoever you are, you are a victim - unless you played a part in this, you lowlife piece of shit. For the rest of us there is only sadness, rage at evil men who did this, and fear. Fear that comes with the violation of sanctuaries, and with the swift deadliness of strangers.
The only cure is ordinary life. Malls that bustle, trains that run, crowds that mill; even an economy that continues to gallop with nary a pause, as I expect it would. Our routines are the most fitting rite of remembrance for this day of infamy.
But whoever you are, you are a victim - unless you played a part in this, you lowlife piece of shit. For the rest of us there is only sadness, rage at evil men who did this, and fear. Fear that comes with the violation of sanctuaries, and with the swift deadliness of strangers.
The only cure is ordinary life. Malls that bustle, trains that run, crowds that mill; even an economy that continues to gallop with nary a pause, as I expect it would. Our routines are the most fitting rite of remembrance for this day of infamy.
Thursday, October 11, 2007
In praise of the cheap peso
The peso is getting more and more expensive relative to the dollar. Since about this day in 2005 to the present, the peso's value in dollar terms has risen by about 27% (from P56 to P46.23 per $).
This is to a big extent due to the overall weakness of the dollar, causing it to become cheaper against all currencies. Aside from this though is specific high demand for Philippine pesos from dollar-denominated funds, basically from foreign remittances and portfolio investment. The timing though is beyond explanation - for all we know this is the result of forces set into motion months or even years back.
The era of the cheap peso arrived after the Asian crisis, as hot money blew cold on emerging markets, and the Central Bank shifted more credibly away from exchange rate targeting to inflation targeting. Filipinos have since gone global, working overseas in droves, seeking foreign customers (both inside and outside the country) to earn suddenly valuable foreign currency.
So is the dearer peso a market-driven correction? Partly. I don't believe in a return to a P56 per dollar regime. But the current trend is disturbing, to say the least. At least one prominent economist is taking up the cudgels for a cheap peso, and a major businesss daily (Business Mirror) is backing him up.
Bringing back the cheap peso makes eminent sense. (Coming from Professor Fabella, we can expect no less.) No, capital controls and exchange rate caps are nowhere near the table. The target is policy choices that may be artificially propping up the peso. Government should now shift towards dollar-denominated options (borrowing, investment, debt pre-payments), in line with the cheaper dollar. (But no bilateral deals in the dark, please.)
But if I may be too malice-minded, perhaps our policymakers are relucant to return to the cheap peso. Their rhetoric of a strong peso being the sign of good macrofundamentals is particularly off-putting. Let's hope they keep an open mind about the concerns of our dollar-earners.
This is to a big extent due to the overall weakness of the dollar, causing it to become cheaper against all currencies. Aside from this though is specific high demand for Philippine pesos from dollar-denominated funds, basically from foreign remittances and portfolio investment. The timing though is beyond explanation - for all we know this is the result of forces set into motion months or even years back.
The era of the cheap peso arrived after the Asian crisis, as hot money blew cold on emerging markets, and the Central Bank shifted more credibly away from exchange rate targeting to inflation targeting. Filipinos have since gone global, working overseas in droves, seeking foreign customers (both inside and outside the country) to earn suddenly valuable foreign currency.
So is the dearer peso a market-driven correction? Partly. I don't believe in a return to a P56 per dollar regime. But the current trend is disturbing, to say the least. At least one prominent economist is taking up the cudgels for a cheap peso, and a major businesss daily (Business Mirror) is backing him up.
Bringing back the cheap peso makes eminent sense. (Coming from Professor Fabella, we can expect no less.) No, capital controls and exchange rate caps are nowhere near the table. The target is policy choices that may be artificially propping up the peso. Government should now shift towards dollar-denominated options (borrowing, investment, debt pre-payments), in line with the cheaper dollar. (But no bilateral deals in the dark, please.)
But if I may be too malice-minded, perhaps our policymakers are relucant to return to the cheap peso. Their rhetoric of a strong peso being the sign of good macrofundamentals is particularly off-putting. Let's hope they keep an open mind about the concerns of our dollar-earners.
Thursday, June 28, 2007
More evidence for a downward sloping demand curve
When I was teaching I often heard the canard, "Gas is so essential it doesn't have downward sloping demand."
Here is evidence to the contrary. Not in any way rigorous, but fairly convincing to a college sophomore!
Here is evidence to the contrary. Not in any way rigorous, but fairly convincing to a college sophomore!
Tuesday, June 19, 2007
The breast of intentions
Another controversy with strong implications for economic freedom: the breast milk advertising controversy. (See this news item.) The Philippine government wants to fully implement the National Milk Code (full text
here.)
The Code is well-intentioned. Yes, breast milk is really best for babies. As with tobacco products, I agree that mandatory labeling can help balance the subtle cues inherent in product advertising.
But extremists advocate an outright advertising ban. That is going too far.
I have a better approach: tax it. The analogy with tobacco (and alcohol) is very precise. And don't call it "sin" tax or some such pejorative term: call it a "health tax". Set it at an ad valorem rate say equal to or even double the VAT (now at 12%). Watch the money roll in and the breastfeeding rates go up! Earmark the money for maternal and child health services of the LGUs (Local Government Units). LGUs would be happy. Maybe they'd even pressure the Congress to approve of it.
here.)
The Code is well-intentioned. Yes, breast milk is really best for babies. As with tobacco products, I agree that mandatory labeling can help balance the subtle cues inherent in product advertising.
But extremists advocate an outright advertising ban. That is going too far.
I have a better approach: tax it. The analogy with tobacco (and alcohol) is very precise. And don't call it "sin" tax or some such pejorative term: call it a "health tax". Set it at an ad valorem rate say equal to or even double the VAT (now at 12%). Watch the money roll in and the breastfeeding rates go up! Earmark the money for maternal and child health services of the LGUs (Local Government Units). LGUs would be happy. Maybe they'd even pressure the Congress to approve of it.
Wednesday, June 06, 2007
The egghead disconnect
The Philippines and Japan are in the process of ratifying a bilateral free trade agreement. In principle I am no fan of bilateral agreements - broad multilateral is more of my thing. But (as usual) I am bothered by the remarks of a Philippine Senator calling for"safety nets", because "Thousands of Filipino workers in factories making garments and electric appliances, and assembling automobiles stand to lose their jobs."
Now where did that figure (vague though it is) come from? The analysis is thought-provoking:
The chair of the Senate committee on economic affairs said his studies showed that 20 percent of Philippine products covered by the JPEPA would be adversely affected because the deal would reduce duties on Japanese exports to the Philippines to zero from between 10 percent and 30 percent.
“The domestic industries that would be affected are in garments, electronics such as toasters, washing machines and cooking ranges, and automobiles and spare parts,” said Roxas.
He noted that the three sectors were the country’s top dollar exports.
Now let's get this straight: these sectors are competitive enough to be able to export. But somehow they are threatened by the fact that we are repealing our tariffs? It boggles.
What's really happening? Well it's this cross-hauling thing: while we export a lot of these industrial products, in the same aggregated categories we are importing. So in some finer categories we are competitive, in some we are not. The latter is threatened by Japan's exports.
Well at least the good Senator didn't call for abrogating the agreement! Just putting safety nets. But then demanding these safety nets could be a ruse to put an end to the whole thing. In any case, such "safety nets" would use public funds, putting them in real danger of being wasted or worse, stolen.
(For an informative discussion about the bilateral trade agreement - which I mistakenly characterized as "free" - read here.)
Now where did that figure (vague though it is) come from? The analysis is thought-provoking:
The chair of the Senate committee on economic affairs said his studies showed that 20 percent of Philippine products covered by the JPEPA would be adversely affected because the deal would reduce duties on Japanese exports to the Philippines to zero from between 10 percent and 30 percent.
“The domestic industries that would be affected are in garments, electronics such as toasters, washing machines and cooking ranges, and automobiles and spare parts,” said Roxas.
He noted that the three sectors were the country’s top dollar exports.
Now let's get this straight: these sectors are competitive enough to be able to export. But somehow they are threatened by the fact that we are repealing our tariffs? It boggles.
What's really happening? Well it's this cross-hauling thing: while we export a lot of these industrial products, in the same aggregated categories we are importing. So in some finer categories we are competitive, in some we are not. The latter is threatened by Japan's exports.
So how big is the threat and what to do about it? As a matter of fact the first part of the question has been answered, "not much." A bunch of eggheads have already done that study. See here. In short: Gains on the Philippine side mostly arise from lower prices and higher imports. Increased export is minimal (except services exports) because our main exports are already charged low to zero tariffs on Japan's side. Output adjustment on the Philippine side ranges from 0 to a whopping -0.04%. (Yeah, that's right, it's already in percent.)
By some awesome display of nonchalance, this research is ignored.Well at least the good Senator didn't call for abrogating the agreement! Just putting safety nets. But then demanding these safety nets could be a ruse to put an end to the whole thing. In any case, such "safety nets" would use public funds, putting them in real danger of being wasted or worse, stolen.
(For an informative discussion about the bilateral trade agreement - which I mistakenly characterized as "free" - read here.)
Friday, June 01, 2007
English or Filipino?
English as a medium of instruction is a hot topic again these days. Philippine Commentary has posted several times, this being the most recent.
As with many other issues, the market-oriented approach seems best. (Which allows me to get away with using my comment as a post in this here economics blog):
It's time to depart from the rhetoric of cultural imperialism and legalism, and shift towards a pragmatic approach to this issue. I was intrigued by Tan's claim that students learn faster with the mother tongue. Not being an education language expert, I did a little googling and found that, voila (Pranses iyan, uy), there is good evidence that mother tongue teaching is associated with better education outcomes, compared to second (or third) language teaching. However there is by no means a consensus - mainly because the "all other factors constant" condition is difficult to meet.
The best paper I've read about the subject is found here. Paper No. 9 argues for a "market-oriented" approach. Rather than a dogmatic, one-size-fits-all approach, why not devolve the language issue to the schools? (And that's not the only choice that needs to be devolved. I happen to think the entire public school system should be privatized and education support extended through school vouchers. But that's another debate). Public resources can indeed be devoted to production of mother tongue learning materials. But there should be no ridiculous language quota one way or another. And note that I am not talking about Tagalog. All the studies have been about the "mother tongue" - which for most Filipinos, is certainly NOT Tagalog (which is my mother tongue).
As with many other issues, the market-oriented approach seems best. (Which allows me to get away with using my comment as a post in this here economics blog):
It's time to depart from the rhetoric of cultural imperialism and legalism, and shift towards a pragmatic approach to this issue. I was intrigued by Tan's claim that students learn faster with the mother tongue. Not being an education language expert, I did a little googling and found that, voila (Pranses iyan, uy), there is good evidence that mother tongue teaching is associated with better education outcomes, compared to second (or third) language teaching. However there is by no means a consensus - mainly because the "all other factors constant" condition is difficult to meet.
The best paper I've read about the subject is found here. Paper No. 9 argues for a "market-oriented" approach. Rather than a dogmatic, one-size-fits-all approach, why not devolve the language issue to the schools? (And that's not the only choice that needs to be devolved. I happen to think the entire public school system should be privatized and education support extended through school vouchers. But that's another debate). Public resources can indeed be devoted to production of mother tongue learning materials. But there should be no ridiculous language quota one way or another. And note that I am not talking about Tagalog. All the studies have been about the "mother tongue" - which for most Filipinos, is certainly NOT Tagalog (which is my mother tongue).
Saturday, May 26, 2007
Why are Filipinos most skeptical of globalization
According to the Social Weather Stations, most people surveyed in 18 countries believe that globalization is mostly good for most people. This is quite an eye-opener - all along I thought most people were, at the very least, wary of globalization.
The highest "approval ratings", as it were, for globalization are found - unshockingly - in China and South Korea. Export-dependent countries both. (Goes to show you the legendary antiglobalist Korean hotheads demonstrating in every possible ocassion, are not quite representative of their countrymen.)
Interestingly, the lowest approval rating is in the Philippines. Perhaps it's the level of education - after all, it's the Philippines and India who are least approving of globalization.
However the result for the Philippines, despite low educational level of the population, should still be surprising. After all, 1 in 5 Filipino workers is employed overseas. Does the export of labor turn the remaining citizenry off of globalization, unlike the export of goods? I conjecture, "yes." The export of labor is attended with great ambivalence, from which the export of goods is spared. The latter separates the worker from the labor (which is then embodied in the product) - the product then undergoes the slings and arrows of xenophobia, while the worker takes off at five o'clock and goes - home.
Of course I'd be the last to oppose free market choices to migrate. But I'd be the first to admit - yes, my ambivalence.
Bayan ko, nahan ka
Ako ngayo'y nag-iiisa
Nais kong magbalik
Sa iyo, bayan ko
Patawarin mo ako
Kung ako'y nagkamali
Sa landas na aking
Tinahak
(My country, where are you?
I am now alone.
I wish to return to you, my country.
Forgive me,
If I have erred
In the way
I have taken. )
The highest "approval ratings", as it were, for globalization are found - unshockingly - in China and South Korea. Export-dependent countries both. (Goes to show you the legendary antiglobalist Korean hotheads demonstrating in every possible ocassion, are not quite representative of their countrymen.)
Interestingly, the lowest approval rating is in the Philippines. Perhaps it's the level of education - after all, it's the Philippines and India who are least approving of globalization.
However the result for the Philippines, despite low educational level of the population, should still be surprising. After all, 1 in 5 Filipino workers is employed overseas. Does the export of labor turn the remaining citizenry off of globalization, unlike the export of goods? I conjecture, "yes." The export of labor is attended with great ambivalence, from which the export of goods is spared. The latter separates the worker from the labor (which is then embodied in the product) - the product then undergoes the slings and arrows of xenophobia, while the worker takes off at five o'clock and goes - home.
Of course I'd be the last to oppose free market choices to migrate. But I'd be the first to admit - yes, my ambivalence.
Bayan ko, nahan ka
Ako ngayo'y nag-iiisa
Nais kong magbalik
Sa iyo, bayan ko
Patawarin mo ako
Kung ako'y nagkamali
Sa landas na aking
Tinahak
(My country, where are you?
I am now alone.
I wish to return to you, my country.
Forgive me,
If I have erred
In the way
I have taken. )
Friday, May 25, 2007
Game theorists speak
Pointing you to a new book about Game Theory. Unlike other references, which present specific game theory models, this is really about the theory, its key areas, progress, empirical application, and future prospects. It is based on interviews with top scholars in the field. I have only the online excerpts to go on, but it is already mostly fascinating. The most interesting of these are of Ken Binmore, Tom Schelling, and Bob Sugden, which are all about the real world applications of game theory. Let's hear from Nobel Laureate Sugden:
Conventional game theory presupposes that each player’s motivations can be represented by numerical payoffs, assigned to the outcomes of strategy profiles, and that the combined behaviour of the players of a game can be explained by using solution concepts that use these payoffs as data. But what entitles game theory to claim that this strategy of explanation will work? It is not a self-evident truth that players are motivated by individual payoffs, or that standard solution principles, such as dominance, hold when defined relative to such payoffs.16 To know if this strategy works, we need to be shown that there is a method of assigning payoffs to real-world games such that, when it is used, the solution concepts of game theory lead to successful predictions. If this strategy doesn’t work, game theory is at fault and needs to be changed. If progress is to be possible, the first essential is that game theorists recognise that it is their job to make their theories fit the world. That is what science is all about.
Friday, May 11, 2007
The good, the bad, and the ugly
The Philippines is holding its local and legilative elections this May 14. Which of the senatorial candidates exhibit the most libertarian leanings? Let's consider their answers to a question on the importation of low cost medicines (Philippine Daily Inquirer, May 6, 2007). I've divided their answers into three categories.
The categories cut randomly across partly lines. Unlike the recent runoffs in France, where the drama was resolved in favor of the more libertarian party, there is practically no ideological distinction between the contending elements in Philippine politics. Both favor good governance and unity; each claims itself as authentic. Product differentiation descends to the level of personalities, rather than philosophies. Perhaps, in the Philippine context, this is a good thing - when products are unstandardized, there is hardly a point to reading the label.
Of the three categories, of course I favor the first; in that category I have awarded the Man-With-No-Name award for the first two. Most of the other answers are blah-blah-blah-blah, blah-blah, blah-blah-blah-blah-blah-blah-blah, blah-blah-blah, blah.
In the final category are answers I have included for your enjoyment.
***************************************************************
PRO:
Vicente Magsaysay, administration: I am for importation of low-cost medicines.
Antonio Trillanes, opposition: I support the importation of low-priced medicines.
Benigno Aquino, opposition: Im in favor of legislative initiatives seeking to amend the Intellectual Property Code to allow parallel importation of medicines as the first step toward broader access to quality health care.
Manuel Villar, administration: Under my watch as Senate President, the Senate approved the bill lowering the prices of medicines by amending our Patents Law to allow the importation and early development of patented medicines to greatly alleviate the health care needs of our people.
PRO BUT PROLIX:
Edgardo Angara, administration: Caring for ones health is a personal responsibility for most people but for me, it is my public duty. I have helped institutionalize a National Health Insurance Program thru PhilHealth, pushed for the creation of the National Institutes of Health to promote health R & D, and rallied behind the Generics Act. Ill push for the increase in the elderlys discount privileges for medicine to 34 percent by proposing amendments to the Senior Citizens Act. Ill support measures that will make available health support to an even bigger public even if it means importing quality low-priced medicines.Alan Cayetano, opposition: The Arroyo administration has neglected the health needs of the people. The cost of medicine is now beyond the reach of most Filipinos. I support the bills in Congress that call for importation of cheap drugs and for the institution of price control on certain drugs. Government purchases of drugs are also mired in corruption. This can be addressed by allowing patients to purchase medicine directly from private drugstores by issuing vouchers instead of the usual bidding that is practiced today.
Panfilo Lacson, opposition: Health is a priority in my advocacy as I have delineated in my HOPE legislative agenda. I, therefore, squarely support the policy allowing importation of low-priced medicines to enable Filipinos to have easier and fuller access to more medicines. Government, however, must ensure that unscrupulous parties that import low-priced but fake or substandard medicine are quickly punished.Luis Singson, administration: I am totally in favor of the parallel importation of low-priced medicines as it redounds to the benefit of the great majority of our countrymen. However, I also believe that we must resolutely pursue a comprehensive health program that includes allocation of substantial research and development funds for alternative herbal-based medicines or drugs made from indigenous materials that abound in the Philippines. We must develop our local pharmaceutical industry to lessen our dependence on imported medicines.
Juan Zubiri, administration: The high cost of medicine affects the poor more than the rich. Thus, it is only right and in the interest of the Filipinos for the government to find ways to lower medicine prices. This could be done by buying low-priced medicines abroad, fostering the local generic medicine industry, eliminating the monopoly of big medicine manufacturers, and placing prices of essential and life-saving medicine under government control. Not only manufactured medicine can be imported. Technologies in the manufacture of medicines with expired patents can also be adopted in the country by drug companies, so we can make cheaper medicines.
Francisco Pangilinan, independent: Because its economically beneficial for the country and people, importing low-priced medicines is a boon. If it poses a challenge to the local pharmaceutical industry, it should be taken as a chance for the industry to be more competitive. The benefit of having cheap but quality medicines for our people should prevail. These are thereasons the Senate passed the patents bill on the third reading before we ended session in February. The House of Representatives should give immediate attention to this bill when we resume session in July.
EVASIVE
Anna Dominique Coseteng, opposition: While I am not against the importation of low-priced medicines, we must ensure that these are of the same high standard of safety and potency as medicines from established drug firms. One way to lower medicine prices is to require manufacturers to put in big enough text, the manufacturers suggested retail price on the package so that consumers will know how much a drug outlet is making, over the manufacturers cost of production.Mike Defensor, administration: One of the priority programs of the government is to bring quality but affordable medicine to the public. Notwithstanding, the implementation of the generics law, we have not been successful in reducing the price of medicines. We are implementing the Botika ng Bayan and the Botika ng Barangay in coordination with theDepartment of Health and the PITC. I agree to the importation of medicine if this will benefit the public.
Francis Escudero, opposition: I am in favor of such a move if indeed it will redound to the benefit of our people. Safety nets would have to be provided, however, in connection with quality control and intellectual property rights.
Loren Legarda, opposition: The manufacture of pharmaceutical products in the Philippines is a virtual monopoly. This makes the price of medicines costly in our country, even if manufactured locally. India produces a lot of medicines comparable to those manufactured here. If importing medicine will bring down the cost of health care in the Philippines, then importation should be undertaken. Unrestricted importation, however, does not sound good. Only medicines which are genuine and which have not yet gone beyond their storage life should be imported.
Tessie Oreta, administration: The cost of medicine in the country is one of the highest in Asia. The high cost becomes a major stumbling block to improving the well-being of Filipinos. Importing low-priced medicines may be one option to address the problem. However, we must ensure that standards of quality are met. In addition, we need to strengthen the capacities of regulatory bodies such as the Bureau of Customs and Bureau of Food and Drugs in order to prevent the entry of fake and substandard medicines.
Prospero Pichay, administration: There should be a balance between the importation of low-priced medicines and the need to let the local drug industry continue to be viable. We need to import low-priced medicines to help our countrymen cope with the high drug prices but we dont also want to kill the local drug industry. So there should be a balance.
Vicento Sotto, administration: Importing low-priced medicines is a major step in addressing the problem of access to affordable and quality medicines. However, we must ensure that standards of quality are always met and are constantly kept updated. In the case of low-cost imported medicines, quality must be a priority. We also need to explore and develop more alternative and traditional medicines, which may be more affordable to the majority of our people. In addition, we need to strengthen the capability of regulatory bodies such as the Bureau of Food and Drugs in order to prevent the entry of fake and below-standard medicines.
HUH?
Sonia Roco, opposition: Are the multinationals providing reasonably priced medicines? Is the distribution of imported medicines democratized? Is the use of herbal and traditional medicine and methods sufficiently promoted and supported by the government? The 54-percent self-rated poor badly need cheap, unexpired medicines. Can they be bought at the Botika ng Bayan?
Ralph Recto, administration: Like the medicines we take, importation should be of the right dosage and kind. The challenge is not to import from India, but to copy India, which has been able to provide cheap medicines to its people by manufacturing essential drugs, to the extent of skirting patent limitations.
Cesar Montano, administration: Thats a good idea. But another option is to support locally made drugslike herbal medicines. In doing so, we are also providing jobs to our countrymen.
Richard Gomez, independent: All Filipinos should be given access to cheap medicines. Poverty is a major problem in our country. Thats why my priority is to raise the salaries of Filipinos.
Jamalul Kiram, administration: Expand the program and increase the budget allocation consistent with WHO standards and health services budget.
John Osmena, opposition: I am in favor of low-priced drugs.
Joker Arroyo, administration: No answer.
The categories cut randomly across partly lines. Unlike the recent runoffs in France, where the drama was resolved in favor of the more libertarian party, there is practically no ideological distinction between the contending elements in Philippine politics. Both favor good governance and unity; each claims itself as authentic. Product differentiation descends to the level of personalities, rather than philosophies. Perhaps, in the Philippine context, this is a good thing - when products are unstandardized, there is hardly a point to reading the label.
Of the three categories, of course I favor the first; in that category I have awarded the Man-With-No-Name award for the first two. Most of the other answers are blah-blah-blah-blah, blah-blah, blah-blah-blah-blah-blah-blah-blah, blah-blah-blah, blah.
In the final category are answers I have included for your enjoyment.
***************************************************************
PRO:
Vicente Magsaysay, administration: I am for importation of low-cost medicines.
Antonio Trillanes, opposition: I support the importation of low-priced medicines.
Benigno Aquino, opposition: Im in favor of legislative initiatives seeking to amend the Intellectual Property Code to allow parallel importation of medicines as the first step toward broader access to quality health care.
Manuel Villar, administration: Under my watch as Senate President, the Senate approved the bill lowering the prices of medicines by amending our Patents Law to allow the importation and early development of patented medicines to greatly alleviate the health care needs of our people.
PRO BUT PROLIX:
Edgardo Angara, administration: Caring for ones health is a personal responsibility for most people but for me, it is my public duty. I have helped institutionalize a National Health Insurance Program thru PhilHealth, pushed for the creation of the National Institutes of Health to promote health R & D, and rallied behind the Generics Act. Ill push for the increase in the elderlys discount privileges for medicine to 34 percent by proposing amendments to the Senior Citizens Act. Ill support measures that will make available health support to an even bigger public even if it means importing quality low-priced medicines.Alan Cayetano, opposition: The Arroyo administration has neglected the health needs of the people. The cost of medicine is now beyond the reach of most Filipinos. I support the bills in Congress that call for importation of cheap drugs and for the institution of price control on certain drugs. Government purchases of drugs are also mired in corruption. This can be addressed by allowing patients to purchase medicine directly from private drugstores by issuing vouchers instead of the usual bidding that is practiced today.
Panfilo Lacson, opposition: Health is a priority in my advocacy as I have delineated in my HOPE legislative agenda. I, therefore, squarely support the policy allowing importation of low-priced medicines to enable Filipinos to have easier and fuller access to more medicines. Government, however, must ensure that unscrupulous parties that import low-priced but fake or substandard medicine are quickly punished.Luis Singson, administration: I am totally in favor of the parallel importation of low-priced medicines as it redounds to the benefit of the great majority of our countrymen. However, I also believe that we must resolutely pursue a comprehensive health program that includes allocation of substantial research and development funds for alternative herbal-based medicines or drugs made from indigenous materials that abound in the Philippines. We must develop our local pharmaceutical industry to lessen our dependence on imported medicines.
Juan Zubiri, administration: The high cost of medicine affects the poor more than the rich. Thus, it is only right and in the interest of the Filipinos for the government to find ways to lower medicine prices. This could be done by buying low-priced medicines abroad, fostering the local generic medicine industry, eliminating the monopoly of big medicine manufacturers, and placing prices of essential and life-saving medicine under government control. Not only manufactured medicine can be imported. Technologies in the manufacture of medicines with expired patents can also be adopted in the country by drug companies, so we can make cheaper medicines.
Francisco Pangilinan, independent: Because its economically beneficial for the country and people, importing low-priced medicines is a boon. If it poses a challenge to the local pharmaceutical industry, it should be taken as a chance for the industry to be more competitive. The benefit of having cheap but quality medicines for our people should prevail. These are thereasons the Senate passed the patents bill on the third reading before we ended session in February. The House of Representatives should give immediate attention to this bill when we resume session in July.
EVASIVE
Anna Dominique Coseteng, opposition: While I am not against the importation of low-priced medicines, we must ensure that these are of the same high standard of safety and potency as medicines from established drug firms. One way to lower medicine prices is to require manufacturers to put in big enough text, the manufacturers suggested retail price on the package so that consumers will know how much a drug outlet is making, over the manufacturers cost of production.Mike Defensor, administration: One of the priority programs of the government is to bring quality but affordable medicine to the public. Notwithstanding, the implementation of the generics law, we have not been successful in reducing the price of medicines. We are implementing the Botika ng Bayan and the Botika ng Barangay in coordination with theDepartment of Health and the PITC. I agree to the importation of medicine if this will benefit the public.
Francis Escudero, opposition: I am in favor of such a move if indeed it will redound to the benefit of our people. Safety nets would have to be provided, however, in connection with quality control and intellectual property rights.
Loren Legarda, opposition: The manufacture of pharmaceutical products in the Philippines is a virtual monopoly. This makes the price of medicines costly in our country, even if manufactured locally. India produces a lot of medicines comparable to those manufactured here. If importing medicine will bring down the cost of health care in the Philippines, then importation should be undertaken. Unrestricted importation, however, does not sound good. Only medicines which are genuine and which have not yet gone beyond their storage life should be imported.
Tessie Oreta, administration: The cost of medicine in the country is one of the highest in Asia. The high cost becomes a major stumbling block to improving the well-being of Filipinos. Importing low-priced medicines may be one option to address the problem. However, we must ensure that standards of quality are met. In addition, we need to strengthen the capacities of regulatory bodies such as the Bureau of Customs and Bureau of Food and Drugs in order to prevent the entry of fake and substandard medicines.
Prospero Pichay, administration: There should be a balance between the importation of low-priced medicines and the need to let the local drug industry continue to be viable. We need to import low-priced medicines to help our countrymen cope with the high drug prices but we dont also want to kill the local drug industry. So there should be a balance.
Vicento Sotto, administration: Importing low-priced medicines is a major step in addressing the problem of access to affordable and quality medicines. However, we must ensure that standards of quality are always met and are constantly kept updated. In the case of low-cost imported medicines, quality must be a priority. We also need to explore and develop more alternative and traditional medicines, which may be more affordable to the majority of our people. In addition, we need to strengthen the capability of regulatory bodies such as the Bureau of Food and Drugs in order to prevent the entry of fake and below-standard medicines.
HUH?
Sonia Roco, opposition: Are the multinationals providing reasonably priced medicines? Is the distribution of imported medicines democratized? Is the use of herbal and traditional medicine and methods sufficiently promoted and supported by the government? The 54-percent self-rated poor badly need cheap, unexpired medicines. Can they be bought at the Botika ng Bayan?
Ralph Recto, administration: Like the medicines we take, importation should be of the right dosage and kind. The challenge is not to import from India, but to copy India, which has been able to provide cheap medicines to its people by manufacturing essential drugs, to the extent of skirting patent limitations.
Cesar Montano, administration: Thats a good idea. But another option is to support locally made drugslike herbal medicines. In doing so, we are also providing jobs to our countrymen.
Richard Gomez, independent: All Filipinos should be given access to cheap medicines. Poverty is a major problem in our country. Thats why my priority is to raise the salaries of Filipinos.
Jamalul Kiram, administration: Expand the program and increase the budget allocation consistent with WHO standards and health services budget.
John Osmena, opposition: I am in favor of low-priced drugs.
Joker Arroyo, administration: No answer.
Wednesday, May 02, 2007
Trivial economics of time allocation as applied to blogging
Why do I blog? Blogging is a matter of self-expression, mostly, along with the hope that some reader may be entertained or informed (in that order of difficulty). This is consistent with a model in which the number of posts in my blog appears as an argument in my utility function, alongside consumption of rice, housing services, transport services....
As Becker argued, utility is actually a production process involving commodities purchased in the market, as well as time. Time however is also a factor in producing the income to purchase the market goods. So the choice of time allocation and choice of goods is a compromise between competing ways of generating utility. For example, in deciding to buy a DVD, the biggest factor is time (for the dollar-per-disk variety, cost is rather trivial.)
And similarly for posting in the weblog. It is relatively easy to trace a life history of my schedule over the past couple of years. In general during months where the frequency of posting would be higher, the value of my time for income-generation was rather low (deadlines farther away).
Now is as fairly convoluted an explanation as you can get for a posting hiatus.
As Becker argued, utility is actually a production process involving commodities purchased in the market, as well as time. Time however is also a factor in producing the income to purchase the market goods. So the choice of time allocation and choice of goods is a compromise between competing ways of generating utility. For example, in deciding to buy a DVD, the biggest factor is time (for the dollar-per-disk variety, cost is rather trivial.)
And similarly for posting in the weblog. It is relatively easy to trace a life history of my schedule over the past couple of years. In general during months where the frequency of posting would be higher, the value of my time for income-generation was rather low (deadlines farther away).
Now is as fairly convoluted an explanation as you can get for a posting hiatus.
The new institutional economics (2)
As discussed earlier, early development economics tended to ascribe irrational and inefficient behaviors to the traditional agrarian economy as a reason for its underdevelopment. But analysis by economicsts such as Ted Schultz and Steve Chung began a quest for elaborating the hidden rationality underlying traditional agrarian structures and behavior. For example, the new theory of share tenancy notes that when insurance markets are imperfect or missing altogether, the tenancy contract acts as a partial insurance device. Under sharecropping, any loss is shared by both owner and tenant.
In general, according to Otsuka and associates, there is no evidence that share tenancy keeps employment of labor or other resources less productive than warranted. Agrarian contracts are found to adapt to real world enforcement problems; hence, share tenancy is more frequently observed in cases where monitoring is less costly, i.e. in closely-knit communities and families.
The need to provide work incentives and closely monitor labor to prevent shirking reveals an important advantage of the family farm as a production unit. Because of this, it is now commonly argued that economies of scale in agriculture are largely non-existent. However we do observe considerable land consolidation; such patterns may be due to market failure. Under imperfect credit markets, tenants face constraints in raising working capital from commercial sources. Banks may be more willing to lend to affluent landowners – who have collateral and a credit history – rather than to cultivators with no assets and no credit history in the formal sector. From a dynamic viewpoint, land serves as a store of wealth to smooth expenditures during income or consumption shocks. Because of these failures, the price of land remains artificially high . Furthermore land transfers are frequently motivated by “distress sales” rather than reallocation of land to more productive uses, leading to cumulative asset inequality.
To some extent, land rental markets offer an important means for improving asset inequality, as landless workers are able to climb the “agricultural ladder” of share tenancy, leasehold, and ultimately ownership.
From this perspective, land reform may have both positive and negative impacts. Conferment of ownership to cultivators may accelerate capital accumulation among the poor towards a more egalitarian and efficient distribution of assets. However redistributive land reform may incur high administrative cost; moreover, incentives to invest may be crippled during the interim period during ownership rights is yet to be transferred. Finally, controls on the rental market, including proscription of share tenancy, may deprive cultivators an important means to for sharing risk as well as foreclosing opportunities to the landless to climb the “agricultural ladder”.
In general, according to Otsuka and associates, there is no evidence that share tenancy keeps employment of labor or other resources less productive than warranted. Agrarian contracts are found to adapt to real world enforcement problems; hence, share tenancy is more frequently observed in cases where monitoring is less costly, i.e. in closely-knit communities and families.
The need to provide work incentives and closely monitor labor to prevent shirking reveals an important advantage of the family farm as a production unit. Because of this, it is now commonly argued that economies of scale in agriculture are largely non-existent. However we do observe considerable land consolidation; such patterns may be due to market failure. Under imperfect credit markets, tenants face constraints in raising working capital from commercial sources. Banks may be more willing to lend to affluent landowners – who have collateral and a credit history – rather than to cultivators with no assets and no credit history in the formal sector. From a dynamic viewpoint, land serves as a store of wealth to smooth expenditures during income or consumption shocks. Because of these failures, the price of land remains artificially high . Furthermore land transfers are frequently motivated by “distress sales” rather than reallocation of land to more productive uses, leading to cumulative asset inequality.
To some extent, land rental markets offer an important means for improving asset inequality, as landless workers are able to climb the “agricultural ladder” of share tenancy, leasehold, and ultimately ownership.
From this perspective, land reform may have both positive and negative impacts. Conferment of ownership to cultivators may accelerate capital accumulation among the poor towards a more egalitarian and efficient distribution of assets. However redistributive land reform may incur high administrative cost; moreover, incentives to invest may be crippled during the interim period during ownership rights is yet to be transferred. Finally, controls on the rental market, including proscription of share tenancy, may deprive cultivators an important means to for sharing risk as well as foreclosing opportunities to the landless to climb the “agricultural ladder”.
Monday, February 05, 2007
Land reform: the new institutional economics
Neoclassical economics has the advantage of strong theoretical foundations, in terms of individual constrained maximization and market equilibrium. However it suffers from a narrow representation of economic institutions. On the other hand, institutional economics addresses a wide variety of agrarian structures, but without deeper theoretical underpinnings. The new institutional economics or NIE seeks to ground the analysis of a wide variety of economic institutions on neoclassical foundations. This is done by broadening the types of constraints and costs, and relaxing competitive market assumptions. Key considerations in NIE are transaction costs, risk, imperfect contract enforcement, and asymmetric information.
Oliver Williamson distinguishes between first-order, second-order, and third-order economizing. First – order economizing covers the institutional environment that determines the “rules of the game”, in the areas of property rights, polity, judiciary, and bureaucracy. Second – order economizing involves governance structures and contract design. Third – order economizing is straightforward resource allocation subject to marginalist efficiency conditions, which is the traditional subject matter of neoclassical economics. Hence, while neoclassical theory specializes in third-order economizing, NIE specializes in the first two.
(To be continued)
Oliver Williamson distinguishes between first-order, second-order, and third-order economizing. First – order economizing covers the institutional environment that determines the “rules of the game”, in the areas of property rights, polity, judiciary, and bureaucracy. Second – order economizing involves governance structures and contract design. Third – order economizing is straightforward resource allocation subject to marginalist efficiency conditions, which is the traditional subject matter of neoclassical economics. Hence, while neoclassical theory specializes in third-order economizing, NIE specializes in the first two.
(To be continued)
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