Testing rational choice theories of institutional change

October, 2018

Having empirically identified institutions as critical determinants of socioeconomic outcomes, social scientists are starting to turn their attention to empirically identifying sources of institutional change. Rational choice scholars offer two theories of such change: conflict theory and cooperation theory. We highlight crucial but easily overlooked methodological issues involved in attempting to evaluate these theories empirically. To do so, we critically examine Coleman and Mwangi’s study of property evolution among Maasai pastoralists in Kajiado, Kenya. Lessons from our examination, we hope, will help this burgeoning area of research proceed productively.

Kornai goes to Kenya

February, 2020

János Kornai developed soft budget constraint logic to explain the socialist world’s dysfunctional economies. We extend his logic to explain dysfunctional land reform in the developing world. International development organizations such as the World Bank provide support for land privatization to developing-country governments, softening their budget constraints. Softer budget constraints encourage developing-country governments to pursue land privatization even when its social value is negative. Kenya’s land reform program illustrates the soft budget constraint syndrome.

 

Wealth Destroying Property Rights

July, 2018

According to conventional wisdom, privatizing the commons will create wealth. Yet in cases found throughout the developing world, privatizing the commons has destroyed wealth. To explain this phenomenon, we develop a theory of wealth-destroying private property rights. Privatization’s effect on social wealth depends on whether privatizing an asset confers net gains or imposes net losses on society. The decision to privatize, however, depends on whether privatizing an asset confers net gains or imposes net losses on property decision makers. When decision makers are residual claimants, these effects move in tandem; privatization occurs only if it creates social wealth. When decision makers are not residual claimants, these effects may diverge; privatization occurs if it benefits decision makers personally even if privatization destroys social wealth. We apply our theory to understand wealth-destroying land privatization in Kajiado, Kenya.