Institutional Reform in the Rural Sector with Labor and Capital Flows: Factor Income Effects, Structural Changes and Misallocations

Ronan Congar () and Louis Hotte ()
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Ronan Congar: Department of Economics, University of Ottawa, Ottawa, ON

No 1606E, Working Papers from University of Ottawa, Department of Economics

Abstract: We analyze the general equilibrium effects of a fundamental property regime transition in the rural sector - agricultural or resource - when both labor and (reproducible) capital are free to move. In contrast to manufacturing, rural production has two characteristic features: it uses a fixed natural asset (land or other natural resources) and operates under one of two property regime types: common property versus exclusive property. Common property is fundamentally characterized with sharing, thus corresponding to such institutions as the family farm (Lewis 1954), free access to resources, and collective use, but adapted for the presence of capital use. We show that labor may actually gain from being effectively forced out of the rural sector. More generally, relative factor intensities determine the factor return effects of the transition, as well as either capital or labor deepening in both sectors. And while the unit cost of effective input efforts decrease, both factors flow out of the rural sector. Under a common property regime, the agricultural productivity gaps for labor and capital are uniquely determined by the output elasticity of land.

Keywords: Institutions; Property Rights; Agriculture; Natural Resources; Factor Migration; Factor Returns; Redistribution; Factor Misallocation; Structural Changes; Agrarian Reform; Resource Privatisation (search for similar items in EconPapers)
JEL-codes: D02 D23 D33 L16 N50 O13 O15 O17 Q15 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2016
New Economics Papers: this item is included in nep-agr and nep-dev
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