UGC-NET (June 2025) · India · National Testing Agency
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)
UGC-NET Economics and international Master's/PhD programmes (Wageningen, SLU-AFEPA, China Agricultural University)
Short models worked on paper: share-tenancy input choice, principal-agent incentive and participation constraints, hold-up and quasi-rents, repeated-game cooperation thresholds, open-access versus optimal effort; and the institutions-and-development literature (North, Acemoglu-Johnson-Robinson, critiques).
How our questions for UGC-NET spread across the units of Institutional Economics. Difficulty: 10 easy, 23 medium, 18 hard.
| Tenancy and sharecropping | 9 | |
| Transaction costs | 7 | |
| Institutions and resource allocation | 7 | |
| Institutions and institutional economics | 6 | |
| Institutional change | 6 | |
| Interlinked agrarian markets | 6 | |
| Collective action and the group approach | 5 | |
| Property rights | 5 |
Choose an answer, then open the working. Each explanation says why the right answer is right and why the others are not.
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
What did Coase himself regard as the main policy lesson of 'The Problem of Social Cost'?
A. Since real transaction costs are positive, the legal assignment of rights and the choice of institution affect efficiency
Coase stressed that the zero-cost world is a benchmark; because transaction costs are positive, law and institutional choice matter, and each remedy (liability, regulation, tax, merger) must be compared at its real cost. The 'never intervene' reading is a common misreading; automatic Pigovian taxation and blanket public ownership were exactly the one-size answers he criticised.
Further reading: Coase 1960; Coase 1988
According to Williamson's discriminating alignment hypothesis, as asset specificity rises from low to high the efficient governance structure moves
A. from market to hybrid to hierarchy
Markets have strong incentives and autonomous adaptation, best when assets are generic; hierarchies have strong coordinated adaptation, best when specificity creates bilateral dependency; hybrids fit in between (Williamson 1991).
Further reading: Williamson 1991
China's household responsibility system, spreading from about 1978, is a standard example of institutional change because it
D. returned farming decisions and residual output to households while land stayed collectively owned
Under the household responsibility system households contracted for land from the collective, delivered a quota and kept the residual, which sharply improved incentives; land ownership remained collective, so full private ownership did not occur. It moved away from, not toward, state farms, and procurement and price reforms were gradual.
Further reading: Lin 1992
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
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
Besley (1995) found that stronger land rights were associated with more tree planting in parts of Ghana but cautioned about interpretation. Why?
C. Planting trees can itself strengthen land claims, so investment may cause rights rather than rights cause investment
In many customary systems planting trees helps establish a claim, so causation can run from investment to rights; Besley used instruments to address this. Tree planting is investment; Ghanaian land is largely under customary tenure, not entirely state-owned; theory predicts rights raise investment, not reduce it.
Further reading: Besley 1995
Barzel's analysis of property rights adds which insight to Demsetz's?
D. Rights are never complete; attributes too costly to measure are left in the public domain and people spend resources capturing them
Barzel emphasised that because measuring every attribute of an asset is costly, rights are partly delineated, leaving some value in the 'public domain' to be captured, which shapes contracts and organisation. Titles do not make rights complete; customs and private agreements also create rights; and rights clearly affect efficiency when transaction costs are positive.
Further reading: Barzel, Economic Analysis of Property Rights
Output on a plot is Q = 40√L, the output price is 1 and labour's opportunity cost is 2 per unit. A sharecropper keeps half the output and bears all labour costs. How much labour does he apply, and how much would a fixed-rent tenant apply?
C. 25 units as a sharecropper and 100 units as a fixed-rent tenant
MP of labour = 20/√L. Fixed-rent tenant: 20/√L = 2, √L = 10, L = 100. Sharecropper: 0.5 × 20/√L = 2, √L = 5, L = 25. Halving the share cuts labour to a quarter here, not a half, because MP falls with √L; 400 is the fixed-rent output, not labour.
Further reading: Marshall; Ray, Development Economics
Braverman and Stiglitz (1982) showed that a landlord who also lends to his sharecropper
A. can use the loan terms to influence the tenant's effort, partly offsetting the share contract's disincentive
In their model interlinkage lets the landlord design credit terms that raise the tenant's effort, so interlinkage can be an efficiency-enhancing response to moral hazard. The 'always block' claim is Bhaduri's view, which they argued does not generally hold; independence of markets is what interlinkage denies; legality is not the issue.
Further reading: Braverman and Stiglitz 1982
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