11/18/2009
Lecture 20: Institutions

What do economists mean when they say institutions

Douglas North defined institutions in 1990 nobel prize lecture
  - "The rules of the game"
    -> people and organizations are players in the game of life
    -> institutions are the rules that govern the game
    -> there may be a high-level game (e.g., constitution) that specify the rules
       by which lower-level rules (e.g. legislation) are to be re-written
  - institutions humanly devised constraints that structure human interactions.
    -> involve formal constraints (rules, laws, constitutions)
    -> involve informal constraints (behavioral norms, conventions, codes of conduct)

Things commonly associated w/ good institutions
  - well-enforced property rights
  - constraints on the executive/leadership
  - well-functioning formal legal system

Brazil film: suggests that giving people land and their life seems to get better
  - no large-scale study of this
  - have to make sure land goes to people who know how to make use of it

50% of the land is owned by 1% of the people
  - that has some colonial roots, and they arguably aren't using the land
    effectively and may even live far away from it
  - would it be more efficient to give the land to someone who would grow
    food on it?

Counterargument: maybe rich landowners leave land fallow periodically and the
  poor think they can just use it, but that's not efficient...

It depends on people's utility functions.  Maybe landowner was or wasn't getting
  as much utility from land as 20 small farmers.

If we lived in a world where there was a risk that the land might be taken by
  government, we would put money into keeping land from being taken, which
  isn't necessarily what the most efficient thing you can do with it.
Milton Freedman: people need promise of property ownership in order to promote
  capital accumulation

But you can't just think of economic optimum.  Part of program in Brazil is that
  they are correcting a societal wrong
  
Article we read for class addressed 'land titling' in the urban poor.
  - poor in many cities already sit on land
  - giving land title would be to formally give them "rights" to the land:
    -> rights to sell, own, bequeath

Argument for this is that
  - formal rights will make people more likely to renovate/improve property
    through investment
  - can use property as collateral to get credit on it (take out mortgages, etc.)
  - logistics: if you don't know who owns the land, you won't know who to deal
    with to add basic services, etc.
  - titles allow you to reliably buy and sell the land
  - land becomes vehicle for savings: crops, cattle, etc.
  - less time is spent protecting your assets (waste of time)