ASRB NET and ARS / SMS / STO recruitment · India · Agricultural Scientists Recruitment Board (ICAR)
Original practice questions written to the published syllabus · not past papersWhy institutions and transaction costs matter for how agricultural resources are used, and how agrarian institutions such as tenancy work.
In the exams: agricultural economics PhD entrance and fellowship examinations (light)
How our questions for ASRB NET and ARS / SMS / STO recruitment spread across the units of Institutional Economics. Difficulty: 27 easy, 17 medium, 0 hard.
| Transaction costs | 8 | |
| Collective action and the group approach | 8 | |
| Institutions and institutional economics | 7 | |
| Property rights | 6 | |
| Tenancy and sharecropping | 5 | |
| Institutional change | 4 | |
| Institutions and resource allocation | 4 | |
| Interlinked agrarian markets | 2 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
Douglass North defined institutions as
B. the humanly devised constraints that structure human interaction, or the rules of the game
North (1990) called institutions 'the rules of the game in a society or, more formally, the humanly devised constraints that shape human interaction'. Firms, cooperatives and agencies are organisations — the players — which North deliberately kept distinct from the rules. Prices and physical infrastructure are not institutions in his sense.
Further reading: North, Institutions, Institutional Change and Economic Performance, 1990
The term 'new institutional economics' was coined by
C. Oliver Williamson
Williamson introduced the phrase in 1975 (Markets and Hierarchies) to distinguish the new, transaction-cost-based programme from the older American institutionalism of Commons, Veblen and Mitchell.
Further reading: Williamson 1975
The theory of induced institutional innovation, which holds that changes in relative factor prices and technology create a demand for new institutions, is associated with
A. Vernon Ruttan and Yujiro Hayami
Ruttan and Hayami (1984) extended their induced technical innovation model to institutions. Olson and Hardin wrote on collective action and the commons; Bhaduri and Bardhan on agrarian relations and interlinkage; Cheung and Johnson on share tenancy.
Further reading: Ruttan and Hayami 1984
Which force is NOT emphasised by Hayami and Ruttan as a source of demand for institutional change?
A. A random shift in voters' tastes unrelated to prices
In the induced institutional innovation model, demand for change comes from shifts in relative factor and product prices and from technical change, which alter the gains from new arrangements. A random taste shift unrelated to economic conditions is not part of their demand side (culture enters on the supply side).
Further reading: Ruttan and Hayami 1984
North's Nobel prize (1993) was shared with
B. Robert Fogel
North and Fogel shared the 1993 prize for renewing economic history with economic theory and quantitative methods. Coase won in 1991; Ostrom and Williamson shared 2009.
Further reading: Nobel Prize records
Akerlof's 'market for lemons' (1970) shows that
A. when buyers cannot observe quality, good-quality sellers may leave and the market can unravel
Akerlof's adverse-selection model: buyers pay for average quality, so owners of good units withdraw, lowering average quality further. Prices falling to marginal cost describes competition, efficient bargaining is the Coase theorem, and integration to avoid opportunism is TCE.
Further reading: Akerlof 1970
Which of the following is one of Ostrom's design principles for long-enduring common-pool resource institutions?
D. Graduated sanctions for users who violate the rules
Ostrom's principles include clearly defined boundaries, rules congruent with local conditions, collective-choice arrangements, monitoring by people accountable to users, graduated sanctions, conflict-resolution mechanisms, recognition of the right to organise and nested enterprises. Uniform national rules contradict congruence; unlimited entry contradicts boundaries; monitoring must be accountable to users.
Further reading: Ostrom 1990
Hardin's 'tragedy of the commons' (1968) is, in the terminology of property regimes, more accurately a tragedy of
B. open access
Hardin's herders face no limits on entry or use — that is open access. Common property, in which a defined group holds rights and excludes outsiders, can be sustainable, as Ciriacy-Wantrup and Bishop and Ostrom stressed.
Further reading: Ciriacy-Wantrup and Bishop 1975; Ostrom 1990
Demsetz (1967) argued that property rights develop when
B. the gains from internalising externalities become larger than the costs of internalisation
Demsetz's demand-side theory: rights emerge to internalise externalities when the gain exceeds the cost, illustrated by Labrador hunting territories after the fur trade. Tax motives and religious sanction are not his argument; if transaction costs were zero, internalisation would be costless and rights would always be complete.
Further reading: Demsetz 1967
Secure land rights are expected to raise farm investment through three channels. Which of the following is NOT one of them?
C. Lower output prices for the farmer's produce
The standard channels are assurance (security of returns), collateral (credit access) and gains from trade (transferability). Lower output prices are not a channel through which tenure security works.
Further reading: Besley 1995; Deininger, World Bank Land Policies
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