WORKSHOP ON INSTITUTIONAL ANALYSIS
DECEMBER 6–11, 2003
SÃO PAULO, BRAZIL
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Transaction Costs and the Carbon Market in Brazil
Catholic University of São Paulo
The aim of the research is to evaluate the transaction costs in the emerging market of carbon in Brazil. The appearing of this market is a result of the increase of costs related to the global warming. This fact generates demands for definitions of property rights related to the atmosphere. There are two initiatives in course to establish these rights and to create a market for pollution permits. The first has started from the governments, which through the Kyoto protocol, committed to produce national limiting legislations for the emission of global greenhouse effect gases in the developed countries. The second, the Chicago Climate Exchange is a market initiative through which companies voluntarily commit to limit their emissions of greenhouse effect gases.
Both have a similar approach: establishing limits for the emission of gases and rules for the trade of pollution permits. If this market consolidates, a credits of carbon industry will emerge. The suppliers will be the companies which are able to produce surplus balances and/or the ones which develop projects in emerging countries where the costs for the reduction of emissions are much smaller.
The research will be performed after two basic objectives:
a) Measuring, for the Brazilian market, the costs of transaction involved in the draw up of a project based on the Clean Development Mechanism. The research will be developed through a questionnaire addressed to companies. It is known that there are important costs for (i) obtaining the information (ii) consultation and (iii) certification. Obviously, it will deal with a sample of survivors. In spite of this limitation, the measurement work will certainly bring important information.
b) Evaluating the costs of transaction involved in setting up the market. As much for the institution of market through the Kyoto agreement as through the Chicago stock exchange there are costs of (i) negotiation (ii) measurement (iii) monitoring and (iv) enforcement. The objective in this area is to develop a description of the important costs and to advance in a methodology which permits, in the future, to perform measurements.
Brazilian Budget Institutions
University of São Paulo
Budget institutions became a focus in the 80's, when some countries showed persistent budget deficits. The first studies were carried out in the 80's and 90's. Today, budget institutions are a subject that interests all society, as we can see by the flourishing of civil societies movements such as the International Budget Project. In Brazil, budget awareness projects promoted by NGOs like the Brazilian Budget Forum, the public budget democratization effort promoted by IBASE, and the budget social indicators project promoted by INESC are getting momentum.
The available literature has consistently used questionnaire-based indexes to measure budget institutions. In particular, previous works conducted by us, which first results were shown at the 2003 ISNIE meeting, used a methodology developed by Esfahani, 2000 to assess the Brazilian Budget Process. This work divides the institutional arrangements for better budget performance in three broad categories that interact with effectiveness and accountability mechanisms to form the index. The information on budget institutions is supplemented by a questionnaire made of 44 questions, answered by country specialists.
NIE theory suggests that improvements in the budget process would generate correlated improvements in budget results such as the debt/ GDP relation. So we would see a negative relation between them. But the empirical application of this methodology to the Brazilian case has shown some puzzling results. As illustrated by the two graphs below, the improvement in budget institutions occurred concomitantly with the upsurge of the public debt/GDP relation.
Therefore, our research question is: Does this puzzling situation remains after we account for other explanatory variables such as state bailouts, currency devaluations, peculiarities of the public debt or does it show a failure of the methodology in grasping the institutional picture?
The way to assemble this puzzle is to take out extraordinary effects such as the 1997 state bailout and deflate the curve to account for the effect caused by currency devaluations and interest rate movements. After doing this we would have a curve that would reflect better the fundamentals of the Brazilian Budget Process, whose confrontation with the evolution of the budget index would expectedly show a negative correlation. Thus this result would support the methodology. On the contrary, in case we find no correlation or a positive one we would have a point against the methodology, thus posing some related questions for further research.
Answering this question is of crucial importance, since dependant on the answer, new guidelines for the research on budgetary institutions could be set forth. Future research questions that could build on our understanding on how to assess budget institutions and provide reasons for the presented results would include questions such as: Is public debt/ GDP a good measure for budget outcome? Does the methodology include a subjective bias? Does the problem arise while aggregating respondent’s answer? Still the methodology may be right, but the theoretical relations behind the questionnaire may be not. Are there any powerful interest group benefiting from the situation?
Behind the Bars: An Analysis of the Governance Structures
of the Brazilian Correctional System
Federal University of Bahía
In front of the Brazilians' correctional system collapse, some alternatives have been discussed, amongst them, the privatization of penitentiary facilities as the United States' initiative, where 6% of its inmates are held in privately operated facilities, from a system that totals 2 million inmates. In this way, this research aims to answer the following question:
What are the possible outcomes of privatizing correctional services
activities in Brazil?
In Brazil, some facts may explain the interest for studying and proposing alternatives to Brazilian correctional segment: a) the current inmate population in Brazil is around 300.000 people for an availability of 190.000 beds. In addition, there is an estimation that 200.000 warrants are due to be enforced by Brazilian Justice officers; b) The 2003 budget of the Brazilian department of correctional affairs is enough for only 14.000 new-beds; c) Riots, escapes, corruption, recidivism rates (70%) and no observance of penal legislation by public agencies are common things.
Critics and sympathizers of private participation in correctional services management use several arguments to advocate their point of views. In general, such arguments rest mostly on ideological and non-utilitarian fundamentals. In this sense, this research tries to analyse the feasibility of the different governance structures in the Brazilian Correctional System from efficiency and performance perspectives, taking in consideration the incentives structures, the legal and the ethical limits of correctional services outsourcing. In order to contribute to public-policies design, New Institutional Economics (NIE) is proposed as the theoretical background of this research, including its two main branches: Institutions of Governance and Institutional Environment.
In order to provide answers to the central question it is intended to establish comparisons between private and public performance in Brazil – where the first experience started in 2000 - and in the United States. With more than twenty-years, the U.S. experience in privatizing correctional facilities should play a leading role as a basis to this empirical investigation. Of course, the American case conclusion can't be transported to the Brazilian reality. Mainly due to difference between both countries in terms of their institutional environment, which implies in distinct transaction-costs. The institutions concept here is clearly understood as proposed by Prof. Douglass North as being the "rules of the game" of formal (laws, for instance) and informal kind (for example, inmates own ethics code).
Preliminary results indicates that private facilities are more concentrated in areas of lower asset specificity, in the so called "correctional creaming", where usually offenders are not so dangerous. It seems to be also a positive correlation between the increasing in asset specificity – in this case represented by maximum-security penitentiaries – and, state-owned and state-managed facilities. Although one faces with some difficult in obtaining empirical information in Brazil, studies focusing such few explored field in Brazil are required. Thus, the analysis of other experiences in the correctional segment, such as the north American one, are essential to the deployment of this research and that is why next steps should examine those practices.
The Implications of Business Networks
for the Management of Buyer-Supplier Relationships:
A Theoretical Framework and Research Agenda
Danny Pimentel CLARO
No firm is in a vacuum. More and more firms and their managers are involved in multiple connected relationships that include trading partners, consultants, friends, relatives, and others in a broad array of functions and purposes. Firms can proactively exploit the information benefits of being embedded in this network of multiple connected relationships. The impact of a firm's network on buyer-supplier relationships has strong implications for the coordination of specific relationships in a supply chain because a buyer-supplier relationship is more than a discrete transactional exchange. The relationship involves transaction specific investments, trust, joint action, and flexibility. Thus, the network and buyer-supplier relationship can be a viable alternative for agri and food firms in an increasingly complex, dynamic and competitive environment shaken by rapid changes in consumer wishes, technology and international trades.
We developed a theoretical framework and tested it using structural equation modeling. A survey conducted in the Dutch Potted Plant and Flower industry provided data for the empirical testing. The results show an interesting distinction between buyer's and supplier's approach toward relationship management, which must be considered in future research.
For the "Workshop of the Institutional Analysis – Coase Institute" attention will be drawn to the design and research questions of a follow up project. This project aims at the study of the relationship between producers and processing firms (slaughterhouses and roasting plants) in the Brazilian Beef and Coffee industries that have a great potential to increase exports. Power/dependence effects, contractual enforcement, and the density and centrality of the focal firm in the network will be incorporated into the original theoretical framework. By including these conceptual elements, we expect to tackle the question of whether firms located in dense networks can coordinate efficiently collaboration and reduce the costs of contract enforcement. In other words, are there any efficiency gains on spending time and resources with a large number of connections in the network? Also, we can address the debate of power/dependence effects versus trust and collaboration in long-term relationships. The question may be: is trust and collaboration more significantly related to performance than power/dependence (e.g. the number of alternative partners and low switching costs)? The research questions behind this project can contribute not only for the development of a solid relationship management approach, but also for the firms involved in the focal Brazilian industries by efficiently designing a governance structure.
Conflict in International Trade Agreements
Orlando da SILVA NETO
University of São Paulo
Tensions between member states regarding compliance on international trade agreements are commonplace in modern international relations theory and practice. It is generally accepted that these tensions usually result from, among other causes, state action driven by a desire to fulfill interests of organized pressure groups that do not represent the general interest of the population. Furthermore, this behavior is eventually found not to be in conformity with international commitments previously made by the state.
An exercise in game theory would indicate that parties involved in a potentially conflicting situation could adopt strategies of cooperation or conflict. To conflict would mean to engage in punitive (quotas, tariff quotas, prohibition of imports, etc) conducts that harm directly the exporting countries producers and indirectly the importing country consumers. To cooperate would mean to engage in a process to define how to adjudicate several issues such as which party is entitled to do what and, once that has been done, how to assert that a given party has acted within the scope of its entitlements.
A case by case definition of the entitlements would provide no incentives for cooperation. A set of well defined ex ante rules, on the contrary, could incentive states to cooperate, because conflict and opportunistic behavior would mean, among other things, the risk of exclusion from the system formed by these well defined rules and a significant rise in transaction costs involved in future transactions.
Given the above stated assumptions, this research project will analyze several potentially conflicting situations experienced in the past by states – including an analysis of the internal interests existing within the parties, their legitimacy - as well as the actual outcome of these situations, including the parties' behavior and the institution used for solving the conflict. Through comparative analysis, this research aims to define, or at the very least conclude that it is not possible to find a definition, whether or not there are criteria or tests of general use that can be applied ex ante to a potential conflict and successfully determine which institution will be better suited to deal with the problem.
The Measures of Voluntary Disclosure Quality
Rosana C. M. Grillo GONÇALVES
University of São Paulo
This research is related with the study and improvement of proxies used for measuring voluntary disclosure quality, and is particularly focused on Internet Financial Reporting (IFR). Many authors quote the difficulty in measuring the extent and quality of voluntary disclosure as one of the major limitations of the voluntary disclosure research field (see Healy, Paul M. & Palepu, Krishna G., Information Asymmetry, Corporate Disclosure, and the Capital Markets: A Review of the Empirical Disclosure Literature, Journal of Accounting and Economics 31 (2001), 405-440).
The demand for financial reporting and disclosure arises from information asymmetry and agency conflicts between managers and outside investors.
Firms provide disclosure through regulated financial reports, including the financial statements, footnotes, management discussion and analysis, and other regulatory filings. In addition, some firms engage in voluntary communication, such as management forecasts, analysts' presentations and conference calls, press releases, internets sites, and other corporate reports.
The credibility (as a quality dimension) of management mandatory disclosures is enhanced by regulators, standard setters, auditors and other intermediaries. But the quality of voluntary disclosure, is hard to be assured.
Initial researches on Internet Business Reporting aimed to determine which companies present financial information and whether the information provided is summarized, identical to the paper version of the annual report or is more detailed. In addition, were tested if there is significant difference between company size, industry type, overseas listings and the extent of financial disclosure on the Internet.
Although this empirical studies are being carried out in several different countries, comparison is very difficult because there is not a common understanding and use of proxies for measuring the extent of financial disclosure on the Internet and the quality of Internet financial reporting.
This research is concerned with the identification and classification of all proxies quoted in the literature, aiming to contribute with the harmonization of used proxies and better comparability of future researches results.
Entry Costs in the Peruvian Apparel Industry
Grupo de Análisis para el Desarrollo (GRADE), Lima
The study tries a new methodology to look at transaction costs in the Peruvian economy. Based on survey data of small firms located in Lima, we estimate the costs of registering a firm formally in the labor-intensive apparel sector. Our measure includes both official fees and the value of entrepreneurs' time, as well as the cost of external help and "extra official payments". Our results identify a large variance in total entry costs among small firms. On average, estimated entry costs are US$168, lower than other studies, including both de Soto (1986) and more recently the World Bank (2003). In addition, we find significant differences in costs incurred by smaller firms (1-5 employees) than larger ones (6-40). Also, women pay more than men to register their firms. Being already registered, entrepreneurs find disadvantages of being formal in the bureaucreatic to comply with administrative requirements. Results suggest that though progress has been made, there are still important areas to work on in order to generate a small-business-friendly environment.
Coordination and Competition in Electric Sector Reforms
Federal University of Rio de Janeiro
Historically, the Electric Supply Industry (ESI) was developed through vertically-integrated monopolies regulated by rate of return scheme. This industrial organisation was appropriate during the ESI's expansion stage. By mitigating risks and facilitating scale and scope economies, companies were able to reduce costs and tariffs. This virtuous cycle ended in the 70's, when the oil crisis reverted the cost trajectory and opportunities of scale and scope economies were exhausted.
The lack of incentives for economic efficiency was an old academic criticism of this industrial organisation. While electricity prices increased, disapproval became widespread. As a result, a large number of countries have introduced, or are currently implementing, changes in ESI. The main objective of reform is to induce efficiency through competition. However, ESI characteristics do not allow for a complete decentralisation of coordination. Most reforms have offered some combination of market elements and hierarchy. As Joskow states New Institutional Economics provide powerful insights on this issue.
There is an intense debate about the optimal extend of decentralisation. Some authors (eg. Hogan) state that experience shows that the system operator must centralise a relevant share of coordination. In this view, the California crisis denotes how excessive decentralisation is inappropriate. Others, like Stoft, support a more decentralised approach, in which coordination through market signals is more relevant. This view is supported by the experience in the UK, where a change toward a more decentralised approach enhanced the ESI performance.
The objective of this research is to identify, with regard to the lessons provided by international experiences, the institutional arrangement most adequate to Brazil's electric sector. The first evidence from the experience is that "one size does not fit all". Structural, operational and institutional characteristics of individual experiences influence the decision concerning the adequate industry design.
The Brazilian ESI is characterised by weak institutions and by the predominance of hydropower. To face those features, mainly the second one, Brazilian authorities adopted a centralised approach to carry out power reform. However, the institutional arrangement was susceptible to conflicts and regulatory risks, resulting in the electricity rationing of 2001.
Consumer Contracts and Courts:
The Case of Leasing Contracts to Sell Cars
Ronaldo Porto MACEDO Júnior
Getúlio Vargas Foundation
During the last few years, leasing contracts have been seldom used as a means to finance car selling to consumers in Brazil. Due to the maxidevaluation occurred in the FHC government (1999), the Brazilian Real lost 70% of its face-value in comparison with the US Dollar. This devaluation strongly affected the economic balance of these contracts which had clauses pegging the installments´ value at the dollar variation rate and were severely affected.
Due the new economic standards implicit in these contracts, many consumers went to courts to revise them, arguing that they became excessively burdensome.
In the face of such claims, three basic types of judicial decisions came about:
1.Those that considered that the consumer freely agreed with the clause that pegged the installment at the dollar fluctuation rate, accepting the risks therein involved. In this case, no legal claim could be made in its count.
2.Those that considered that the risks of the transaction should be borne exclusively by the car dealers (who sold cars financed by leasing contracts).
3.Those that considered it more reasonable to share the risks between consumers and suppliers.
During the adjudication process, no economic calculus was carried on, aiming at objectively determining the "tantamount" due to each party. Courts' opinions were grounded solely through rhetorical and legal principiological terms.
This research project aims at using the tools of the economic analysis of law to answer the following questions:
1.a) What should have been the optimal decision, assuming the rationality of the agents?
1.b) What should have been the optimal decision, assuming bounded rationality?
2.a) Can empirical data ground the claim that the courts decided rationally?
2.b) Can empirical data ground the claim that the courts decided according to a bounded rationality logic?
3. What consequences do judicial decisions bring about in relation to the use of leasing contracts in car selling business?
In order to answer such questions, it will be needed:
i. Theoretical models to explain the agents' behaviour
ii. Empirical research collecting the main decisions of the courts
iii. Gathering information concerning the decision-making process adopted by the courts in some paradigmatic cases
Iv. Empirical research to collect information on the practices in the related market.
We think that this case study will offer solid evidence to critically analyze the effects of courts decisions, as well as to assess the grounds offered by the courts in such lawsuits.
Transaction Costs of Credit for Farmers
Matheus Kfouri MARINO
University of São Paulo
Identification of the transaction costs of the relationship between farmer and financial agent and the analysis of the institutional obstacles in the access to official credit in Brazil.
Why this problem is important
The analysis of the relationship between the farmer and the financial agent along with the institutional environment that surrounds them will make it possible to propose institutional modifications that will reduce the obstacles to the transaction being studied.
The research is justified due to: i) scarcity of resources for financing farm activity in Brazil; ii) existence of elevated transaction costs; iii) evidence of institutional failures that support the farmer/financial agent relationship; and iv) nonexistence of previous studies on agricultural credit with the institutional analysis approach.
What has already been done
De Soto (2000) associates poverty to the existence of high transaction costs, and as a result, the presence of institutional failures. In Brazil, innumerable authors have analyzed farm credit (FAVERET 2002, ARAÚRO, 1977, 1980, 1986 e SHIROTA, 1988), focusing, however, only on distribution of resources, supply, and demand for official credit, without addressing the existence of transaction costs.
Benham & Benham, 2001 and Zylbersztajn & Graça, 2002 advanced in the development of methodology for measuring transaction costs, which will serve as the basis for the development of the research.
The future study will use as its basis the theoretical framework of the New Institutional Economics (NIE), and will be structured in the following stages:
i) Mapping of the institutional environment, the rules of the game (North, 1991);
ii) Characterization of the transaction between the financial agent and the farmer, from the viewpoint of Transaction Cost Economics (Williamson, 1985);
iii) Identification of the possible institutional obstacles that impact the performance of the agents involved; and
iv) Empirical measurement of the transaction costs involved in this relationship (Benham & Benham, 2001 and Zylbersztajn & Graça, 2002).
Hypothesis: the relationship between the farmer and the financial agent presents high transaction costs due to the presence of institutional obstacles.
Should the hypothesis of the existence of high transaction costs be confirmed in the farmer/financial agent relationship, the conclusions will allow the proposal of institutional improvements that will generate efficiency for the entire system.
In a second phase, the study will allow the advancement in the discussions of the institutional obstacles identified in the relationship being studied, such as the institutional nature of the agricultural firm, either individual farmer or enterprise.
Other applications for the methodology of transaction cost measurement will be developed from the advances of this research.
An Economic Analysis of Biofuels
University of São Paulo
Three theoretical instruments give support to my research line: Industrial Organization, the New Institutional Economics, and Political Economy. In my Ph.D thesis, I studied the "Deregulation of the Brazilian Sugar and Alcohol Agribusiness System", focusing on the analysis of the impacts resulting from an important institutional change: the withdrawal of the State from a position of intervention over the above production chain.
With the institutional change, many of the functions previously carried out by the government were transferred to the various segments involved in the production chain. This imposed deep changes to be faced by these segments, standing out the need for a reorganization of the system as a whole. We identified the most efficient government structures for the transactions of the products based on Transaction Costs Economics.
Besides the withdrawal of the State, other institutional changes and their effects were analyzed in the study, such as the change of the Brazilian political regime and the promulgation of the Brazilian Federal Constitution of 1988 (which strengthened the power of the Congress and diminished the intervenient role of the State). Another core study point was the identification of the actors who influenced the political decisions of the deregulation process.
Finally, we studied the existence of market failures in the sugarcane chain, which allowed us to point out a new required form of state regulation, considering the new institutional environment.
My ongoing project is "Biofuels: state policies and institutional changes", whose focus is to analyze the main state policies required for the development of biofuels (those derived from both sugarcane and biodisel, i.e., diesel made from vegetal oils, like soya) and the necessary institutional changes to warrant their coexistence in a free market domain, considering their competitive differences.
The specific targets involve:
Identifying the features of the main types of developing biofuels, both in Brazil and in other regions (the USA, Canada, UE and Asian countries), and establishing criteria for the selection of projects that come to take part in the National Biofuel Program;
Analyzing institutional changes (legislation, norms, technical rules, standardization, regulation of the market) needed to allow the coexistence of the various kinds of fuels that can be incorporated to the Brazilian energy matrix;
Studying the impacts and bottlenecks in their respective production chains for specific types of biofuels (production, distribution and trade) and stating the necessary policies for overcoming detected problems;
Equating the competitiveness of biofuels (production costs, taxes, logistics) as compared to fossil fuels, including the need for different taxes, and the resulting need for state policies to encourage their respective uses, considering the existing environmental externalities.
The Process of Choice in Higher Education in Brazil:
The Overlaps Between Human Capital and Social Capital
As Reducers of Uncertainty and Risk
University of Passo Fundo
Despite the enormous obstacles in terms of the budgetary restrictions of Brazilian families, the number of enrollments in higher education has been growing, mainly in the Southeast. We perceive that the "culture" of higher education has been consolidating itself in the country, even though the structure of formal employment reveals that the number of unemployed with this level of education is increasing and there are profound gaps between the work alternatives and the different capabilities required. The ideology of human capital is put in check, which brings great uncertainty and risk at the moment of students going forward with their studies and choosing a profession.
The present research proposes to deepen the analysis of the choice process in higher education of Brazilian university students, so as to show the possible overlaps between the individual component involved in the conception of human capital and the collective behavior present in the concept of social capital. For this, we seek, specifically:
To analyze the process of information obtainment of university students in a scenario of changes and imbalances observed in the recent Brazilian labor market, marked by growing informalization of the productive activities and the work relationships. We intend to contextualize the choice of career of the students, still traditionally related to the model of industrial salaried society of the past, in this new scenario of productive restructuring, economy of services and the process of informality;
To identify the role of the different institutions associated to the process of university choice, such as family, school, university and the State, as active forms of social organization. We question the form in which students utilize the social rules to achieve their goals and how they affect their level of uncertainty and their behavior in relation to the future practice of their university formation.
This study is justified by the need to diminish the individual and social costs involved in a context of scarcity of adequate capabilities in the labor market and in the risk involved in the possibility of being overqualified in the Brazilian labor market.
Allocation of Labor in Agriculture:
Family Farms and "Pluriactivity"
University of São Paulo
The goal of the research is to examine the economic rationality underlying the allocation of labor in and out family farm. A widespread and robust organization such as family farm must have a economic rationality. Some market imperfections can be suitable microfoundations to explain the survival of family farming. Family farm is understood as a specific organizational form, different from a firm constituted by labor contracts. In family farm, ownership of productive resources, management and direct work are executed by the very same individuals. Relationship between family members allows to specific solutions to agency problems. Utility functions of family members are supposed not independent.
Choice of work place (in-farm or out-farm) is due to relative efficiency of alternative ways to conduce transactions with labor and agricultural products, given prices and transaction costs in inputs and outputs markets. In absence of transaction costs, it would be indifferent where family members work, since factors and products markets clear and arbitage condition holds.
Literature on recent rural development in Brazil stressed the importance of non-agricultural jobs to rural families income. "Pluriactivity" is related to the growing participation in family farmers income of wages earned out of the farm in agricultural or non-agricultural activities, in rural or urban areas. "Pluriactivity" may be seen as a strategy suitable to maximize expected value of family aggregate income, under uncertainty in labor and product markets.
The main hypothesis is that high transaction costs in labor markets (e.g. searching costs), induce an apparent misallocation of family work force, with low productivity of in-farm work (and maybe high productivity of land and capital). High transaction costs in product markets are supposed to increase the share of out-farm labor and the in-farm consumption of agricultural output. Different from the usual approach, I suspect that, at least for a large class of Brazilian family farmers, the choice of a specific allocation of labor is better explained by considering failures in alternative markets where family members could obtain higher earnings.
It is argued that the allocation of family labor inside and outside of the farm depends on costs of using labor market. In absence of transaction costs, the problem of family farm would be meaningless.
Interviews with a selected sample of family farms will be made, in order to know the composition of family income, in and out farm labor time, and basic information on each farm. It will be necessary to make questions about transaction costs in products and labor markets, such as frequency and time wasted in job searching. Hypothesis will be translated in a model in which the share of out-farm (in-farm) labor is the dependent variable and proxies of transaction costs are included among independent variables.
Origin and Quality Programs for Argentine Beef:
Three Cases and the Irremediable Situation of Argentine Beef
Buenos Aires University
This ongoing research project examines the current status of quality beef trade in Argentina employing >the "multiple case study" method. The economic and strategic aspects of each case are described in the light of the New Institutional Economics, together with production and marketing value-adding alternatives. These cases – "Prinex-Exal", "Pampas del Salado" and "Carne Angus Certificada"– are three origin and quality assurance case studies that add value to Argentine beef. Origin and quality assurance systems for beef have been developed as a way of differentiating products in order to satisfy increasingly demanding European and North American consumers. This led to gaining new markets and obtaining higher prices and profit margins. Such systems are based on institutional, organisational, technological and commercial innovations that are ultimately co-innovations, since they derive from generally accepted collective action processes. Although such designs improve competitiveness in the livestock and beef sector, they are difficult to replicate massively because the strong influence of path dependency, particularly within informal institutional and organisational environments – 50% of the beef market in Argentina is informal –, and are unable to achieve sustainable competitiveness. The object of this project is to identify why under a distorted institutional environment where the rule of law is not fully enforced and where the business culture is informal and lacks clear rules of the game, it is difficult to implement and maintain origin and quality assurance systems, affecting any possibility of widely applying and developing these new designs, thus turning the argentine livestock sector into an irremediable situation. Finally, rather than differentiating themselves through continuous improvement processes and added value, players in the meat chain employ tools that reduce competitiveness of the systems involved and increase transaction costs.
Judicial System and Transaction Costs
University of São Paulo
The judicial system plays an important role in assuring property rights, enforcing contracts and reducing transaction costs (North, 1990). Cooter and Rubinfeld's (1989) model proved that if going to trial costs one party more than it costs the other, even a nuisance claim has chances to be settled for a positive sum of money. This research focuses on four aspects of the Brazilian legal system that are likely to increase these costs and asymmetries, namely the constitutional provision of free justice, a poorly structured settlement process, the lack of separation between the adjudication and the negotiating phases and the weak constrains to avoid unethical practices. The goal is to measure these impacts over the organizational litigant and indicate directions for Justice reform in Brazil.
The heavy caseload of Brazilian judges leaves room for extra-procedural practices. It is usual that judges threaten the defendants with an unfair judgment to force the party into an agreement. This is only possible because the judge responsible for adjudicating the trial is also the one who conducts the settlement negotiations. The result is an added incentive for frivolous claims, since it increases the value of defendant's losses. On top of that, the non-structured form of settlement negotiation makes the possibility of an agreement lower, due to the small amount of information exchange between the parties.
When this scenario is met by weak enforcement of the rules to curb unethical practices and a depressed labor market for lawyers, the potential gains from frivolous suits is two-folded. It is further enhanced by the constitutional provision for free justice, which reduces the costs for the plaintiffs. The initial trend for settlements is then distorted. The defendant is now forced to bear the extra costs of going to trial to avoid the much greater potential loss for opportunistic behavior.
Empirical data collected so far supports these ideas. They are being further tested through regression analysis of data from five large companies and the theoretical framework of repeated games (Hammit, Carrol and Relles, 1985) will be central to testing the disincentives to settlements.
Quasi Rent Appropriation: The Specialty Coffee Growers X Processing Industry Relation
University of São Paulo
The negotiation between participants of a contractual relation whose main element is investment on specific assets creates a quasi rent conceding one party or the other (or both) some ex-post bargain power. The quasi rent value of the asset is the difference between the value generated in the specific activity and its best alternative use.
Does this division of the quasi rent of the coffee grower x industry relation move to efficiency?
If the approach that the property rights is validated, i.e., that an efficient transaction would imply that the party investing in a specific asset should keep the residual property rights, a better orientation of public policies would enable specialty coffee farmers to obtain a higher income.
Theory and hypotheses
Generally, a long-termed although informal contractual relation between industry x coffee growers involving a specific asset would avoid the result of the prisoner's dilemma, i.e., it is a cooperative game with multiple results concerning the division of the quasi rent. According to Grossman and Hart, the incompleteness of the contracts may lead to an incompatible ex-post return to one of the parties that does not compensate ex-ante investments.
Fitter & Kaplinsky argue that producers and industry would efficiently appropriate the quasi rent if the consumers identified which of them is the differentiation actor. Producers most likely appropriate part of the quasi rent if consumers identify this differentiation as land-related properties. Alternatively, industry keeps most of the quasi rent if consumers recognize the product brand related to the industry ´s image rather than either quality or grower.
The coffee chain will produce an empirical test, based on the Transaction Cost Economics and the Property Rights supported by the Game Theory. The investigation of the efficiency in the division of the quasi rent is grounded on (a) the gains obtained by the actors investing in specific assets, and (b) the consumer perception.
This analysis will examine the validity of the theory of the efficient allocation of the residual rights of property, and propose public policies.
The Role of Pensions Funds and Social Development in Brazil
José Roberto Ferreira SAVOIA
University of São Paulo
To analyze the role of pension funds in the social development of the Brazilian economy, discussing its capacity to provide funds on a sustainable basis to other sectors.
The system of retirement income security in Brazil is based on three Pillars: Pillar 1 is a traditional intergenerational-transfer PayGo system of Social Insurance responsible for the basic retirement income needs of workers and their dependents, and Pillars 2 and 3, which as a rule coexist side-by-side rather than one on top of the other, are comprised of "closed" complementary pension funds (similar to "trusteed" pension funds in certain OECD countries), and "open" pension products marketed by insurance companies.
The greatest dilemma faced by regulators relates to the degree of discretionary freedom that should be granted to the respective systems' administrators. In most "common law" countries, for example the US, UK, Ireland and Netherlands, the "prudent man" rule has been adopted, a rule that gives administrators greater latitude in decisions relating to the allocation of financial resources, and also greater responsibility for the consequences of these decisions, before strict and severe interference from the authorities.
In Brazil, the conditions for supervision are precarious, the capacity for inspection is limited and legal punishments of the agents who fail to adequately protect the rights of participants are light or difficult to enforce. Although the intention in the mid-term is to improve this picture, it would not be prudent to conceive a totally free-market in the short term. The financial environment in Brazil is going through quick changes and a process of accentuated innovation.
What is the role of pension funds in providing funds to the development of the Brazilian Economy?
To understand better the role of pensions; to discuss future development of investments regulation for institutional investors; to discuss economic impacts of incentives and to examine what are the institutions which can lead the process of development promotion; to evaluate new initiatives in Europe, USA an other parts of the world that focused in the contribution of institutional investors to finance the development and to understand what was positive and negative about those initiatives and identify what should also be implemented in Brazil.
Available data on pension funds' investments and an statistical model to project its evolution;
Case study: a general view of international experiences;
A cross-country analysis of investment's regulation and the consequences for social development.
Expected results and conclusions
Discussion of the role of pension funds in Brazil and its efficiency in the social development;
Discussion of the most relevant aspects of international regulation and institutional arrangements to pensions.
Water Scarcity and Institutional Change:
Analysis of the Regulation of Water Resources in Brazil
Roberto Fava SCARE
University of São Paulo
The growing demand for water resources, both in aspects of quantity and quality, increases the dispute of users for utilization of the good. The perception of scarcity causes water to be considered a natural resource with economic, strategic, and social value. Alston & Mueller (2002) state that when resources become more or less scarce, the reigning regime of property rights can reduce the value of the asset. The losses encourage those involved to change the property rights, seeking a form more adjusted to reality.
This perception has led governments around the world to reorganize the institutional environment and redefine new property rights through a system of participative and decentralized management that stimulates the utilization of the resource in a rational manner.
However, this process is not homogeneous and simultaneous. The moment of institutionalization and the degree of complexity of each environment, both nationally and internationally, vary greatly. This study seeks to identify the causes of the variation among the institutional environments in various countries and identify the relation between scarcity and modification in the regulation of the environment in Brazilian states.
The study is based on the theoretic approach of evolution analysis of the institutional environment presented by North (1990; 1994), on the definition of property rights proposed by Eggertsson (1990), on the emergence and economic analysis of property rights presented by Barzel (1997), and on the model of supply and demand of property rights proposed by Alston, Libecap & Mueller (1999).
To this end the study is divided in two parts. First, a qualitative study is conducted of the history of the evolution of the international institutional environment, seeking an understanding of the changes that occurred in Brazil and the evolution of the Brazilian case until reaching the present system of water resource management.
Second, a quantitative analysis is done of the influence of scarcity on the proposing and passing of state laws. The study further seeks to identify the influence of water scarcity on the velocity with which laws go through the system and on the complexity of the institutional environment.
The study concludes that while the process of environment modification does not occur in a linear fashion, scarcity possesses a significant influence on the velocity of environmental change and on its degree of complexity.
Interfirm Arrangements in Different Institutional Environments: Mcdonald'S Governance Structures
Elizabeth M.M.Q. Farina, Paulo F. Azevedo, and Vivian L. S. SILVA
University of São Paulo, FGV, and Federal University of São Carlos, respectively
To eat a Big Mac is to taste the same thing – good or bad – anywhere in the world. What most calls attention in this statement is not the geographic dispersion, even though this is greater than one can imagine, but the diversity of economic environments to which a single entrepreneurial strategy is subjected.
The identification of the effects of differences on the "rules of the game", according to North (1990)'s terminology to institutional environment, on the establishment of interfirm contractual arrangements, though it is an issue recognized as being of great relevance to New Institutional Economics has been the object of few empirical studies. In part, this situation stems from the difficulty of identifying and isolating the effects of an institutional change – reason for what most research involves historic cases or comparative analysis among countries, in which however, it is impossible of crediting the distinct patterns of contractual arrangements employed to the differences among the institutional environments. For this reason, a comparative study that allows control over several variables, such as products and entrepreneurial strategies, can identify with greater precision the possible relationships between the variables of the institutional environment and the governance structures.
In this context we propose a comparative analysis of the influence exerted by different institutional environments on the standard of coordination upstream adopted by the big one fast food franchise chain in the world, McDonald's, in its various markets. In the case of international franchise chains like McDonald's, that manages 30,000 restaurants in 118 countries serving 46 million customers each day, the standardization requirement poses additional challenges due to the diversity of the institutional environment. This diversity, in turn, can induce the establishment of different governance structures utilized by the chain to supply their own or franchised units. Additionally, standardization allows control of variables, such as type of product and differentiation strategies, isolating the effect the differences in the institutional environment exert on governance structures in the upstream coordination.
Based on a standardization interview agenda custom-made for this study, we propose a comparative analysis of McDonald's case study in different countries. Some preliminary results were obtained from a comparison between Brazil and France. For instance, it was identified that in Brazil, McDonald's employs governance structures that provide greater control over transactions, such as quasi-vertical integration or dedicated dealing contracts, when compared to France. Among other factors, this result may be due to an important institutional dimension: the competition policy that in France is more restrictive than in Brazil regarding vertical coordination.
Community Based Land Reform in Brazil:
A Stochastic Frontier Analysis
Hildo Meirelles de SOUZA FILHO
Federal University of São Carlos
This research is based on an evaluation of Cédula da Terra Community Based Pilot Program, whose conception, mechanisms and operation represents a shift from traditional expropriatory-distributivist land reform approach. The Program is a pilot project funded by the World Bank, which uses real-estate market mechanism rather than expropriation as instrument of land redistribution to the poor. The main characteristics of the Cédula da Terra Program are:
Cédula da Terra is a decentralized program, in the sense that it establishes general criteria for the asset redistribution process in a determined region and provides funds to aid the beneficiaries' own initiatives. It sets a limit in the prices of land acquisition and in the total financing, leaving to the beneficiaries themselves the decision on land selection, the negotiation of land acquisition, and the definition of the productive ventures to be implemented;
Self-selection of the beneficiaries; in other words, the Program does not select the participants, but merely defines the basic characteristics of the population of potential beneficiaries and the conditions of access. Then, those interested in participating in the program seek it out being served on a first-come first-serve basis;
Participation in the Program is collective and not individual, as only associations of farmers can receive credits;
Land is not distributed, but sold through an operation of agrarian credit (complemented by other lines of credit) contracted by the benefiting association and the financial agent of the Program. The obligation of land payment creates incentives for production and reduces the cost of monitoring on the part of the financial institutions.
Data was collected from 309 beneficiaries of Cédula da Terra, providing information to perform an impact evaluation. An stochastic frontier production model has been used to perform an evaluation of technical and allocative efficiency of beneficiaries. Preliminary results showed that schooling, extension service, credit, associative production and subsistence production reduce technical and allocative inefficiency. Implications for policies are straightforward: improve credit and extension services institutional arrangements as a short and medium term policy, and education in the long run.
An Empirical Analysis of the Venezuelan Informal Commerce Institutions: Implications From a Case Study for Understanding the Entrepreneur-Survivor Differences
Centro de Divulgación del Conocimiento Económico (CEDICE),
How and what economic institutions shape the informal sector dynamic in Venezuelan urban areas? How do politics, culture and household characteristics, affect these institutions? Is it relevant to understand household efficiency differences in order to improve public policy design?
As a result of an ongoing research about the informal sector dynamics in Venezuelan urban areas, this study describes and models informal institutions which are characteristics of the informal commerce. The research test the hypothesis that, contrary to the common opinion that informal commerce transactions take place in a without rules environment, it does exist a complete set of informal institutions underlying economic relations in the informal commerce. Informal laborers form a heterogeneous world where entrepreneurs and survivors coexist. In order to reduce the informal sector size the study claim for two kind of different "micro level" policies depending on what group is the policy intended to affect: survivors or entrepreneurs.