Categoria: docs

KNOWLEDGE, CAPABILITIES AND THE POVERTY TRAP: THE COMPLEX INTERPLAY BETWEEN TECHNOLOGICAL, SOCIAL AND GEOGRAPHICAL FACTORS

Jan Fagerberg  and Martin Srholec

Abstract:  This paper explores the possibility that technological capabilities, to lead to development, need to be accompanied by a broader set of “social capabilities”, reflecting not only the
quality of governance but also the spread of values, beliefs and institutions that encourage members of society to actively contribute to the development process. To investigate this issue, a set of empirical indicators, reflecting the capabilities that have been emphazised in the literature as being important for development, was identified.

DOES GROWTH FURTHER IMPROVE ECONOMIC FREEDOM?

Miroslav Prokopijevic – March 2002
“…the reformer has enemies in all these who profit by the old order, and only lukewarm defenders in all those who would profit by the new”.
Machiavelli, The Prince, Ch. VI.

Abstract: Countries without natural resources or foreign aid can grow just if they do serious economic liberalization. Liberal reforms are first followed by a post-reform recession, and afterwards with growth, provided they create a well business environment, compared to alternatives. Economies growing because of liberalization just exceptionally undertake further reforms in order to enlarge gains – is the main finding of this study.

Sulle dinamiche del ciclo misesiano

Enrico Colombatto – Università di Torino e ICER

Abstract: Di recente l’analisi austriaca del ciclo economico è stata oggetto di rinnovato interesse: contrariamente alla maggior parte delle analisi tradizionali, infatti, la visione originaria di Mises non spiega il ciclo richiamandosi a shock esogeni o a illusioni di cui sarebbero vittime gruppi di agenti economici.

Per contro, l’accento viene posto sul fenomeno dell’inflazione sequenziale generato dal sistema bancario e dalla variazione nei fondamentali a essa legata. Questo contributo si inserisce nel solco austriaco, ma intende approfondire non tanto la fase di espansione – oggetto principale dell’analisi misesiana – quanto i periodi di crisi e depressione, caratterizzati dalla dinamica dalla dinamica dei prezzi relativi e dai suoi effetti in termini di consumo, di produzione, di comportamenti sul mercato dei fattori.

In particolare, si sostiene che, a seguito della crisi, l’andamento della domanda di fattori provoca l’acquisizione di rendite di posizione; queste spiegano il persistere di periodi di crescita modesta, se non di stagnazione

Hayek and Economic Policy (The Austrian Road to the Third Way)

Enrico Colombatto Università di Torino and ICER

Abstract: By examining Hayek’s approach to economic policy, this paper tries to show that his understanding of a free-market society was ambiguous, if not contradictory. Hayek was indeed following the Austrian tradition by rejecting technocratic views of policymaking. Nevertheless, he advocated a constitutional approach ultimately based on the rule of law created behind a veil of ignorance. Regulation and a fairly extensive welfare state are not ruled out either, and are subject to evaluation through a mix of rule of law (what that means), public opinion, common sense.

After close inspection of the Road to Serfdom, the Constitution of Liberty, Law, Legislation and Liberty this contribution concludes that not only does Hayek fail to provide clear answers to the fundamental questions of economic policy. He also advocates a Third Way characterised by enlightened social engineering. In particular, the state has the duty to provide a suitable framework for the individual to develop his action, and to meet those social needs that the market fails to satisfy.

Some Counterexamples in Positive Dependence

Taizhong Hu, Alfred M¸ller, and Marco Scarsini: December 2002, revised March 2003 and June 2003

Abstract: We provide some counterexamples showing that some concepts of positive dependence are strictly stronger than others. In particular we will settle two questions posed by Pemantle (2000) and Pellerey (2002) concerning respectively association versus weak association, weak association versus supermodular dependence, and supermodular dependence versus positive orthant dependence

Positive value of information in games

Bruno Bassan, Olivier Gossner, Marco Scarsini, and Shmuel Zamir

Abstract: We exhibit a general class of interactive decision situations in which all the agents benefit from more information. This class includes as a special case the classical comparison of statistical experiments `a la Blackwell. More specifically, we consider pairs consisting of a game with incomplete information G and an information structure S such that the extended game Γ(G, S) has a unique Pareto payoff profile u.

We prove that u is a Nash payoff profile of Γ(G, S), and that for any information structure T that is coarser than S, all Nash payoff profiles of Γ(G, T ) are dominated by u. We then prove that our condition is also necessary in the following sense: Given any convex compact polyhedron of payoff profiles, whose Pareto frontier is not a singleton, there exists an extended game Γ(G, S) with that polyhedron as the convex hull of feasible payoffs, an information structure T coarser than S and a player i who strictly prefers a Nash equilibrium in Γ(G, T ) to any Nash equilibrium in Γ(G, S).

Property rights systems and the rule of law

Ronald A. Cass Abstract: Property rights – rights to control, use, or transfer things (broadly conceived) – though not readily distinguished from other rights, comprise a category of rights that both strongly benefit from clear and well-designed legal rules and often are subject to “chiseling” from failures to follow legal rules or from ex post alterations of the rules. Governance systems that limit official discretion to impair property rights, that have institutions and rules that provide clear definition to property rights and that provide predictable and consistent applications of those rights, will accord with the rule of law and generally will also advance social welfare.

Some systems will depart quite evidently from this pattern, to the detriment of those societies, allowing too ready changes in law at the discretion of too few officials, too unconstrained by law, as the example of Zimbabwe illustrates. But differences between the good and the bad will not be drawn along simple, discrete lines, a point made by comparing the Zimbabwe example with the United States.

The systems most consistent with the rule of law will not be able effectively to bar all changes in the law or to eliminate official discretion. Instead, those systems will limit the avenues for change and the ambit of discretion in ways that make property more secure and impositions on it more predictable without reference to the identity of the individual official enforcing the law or the individual property owners subject to it.

Wealth Polarization and Pulverization in Fractal Societies

Fabio Privileggi and Guido Cozzi

Abstract: In this paper we study the geometrical properties of the support of the limit distributions of income/wealth in economies with uninsurable individual risk, and how they are affected by technology and preference parameters and by policy variables.

We work out two simple successive generation models with stochastic human capital accumulation and with R&D and we prove that intense technological progress makes the support of the wealth distribution converge to a fractal Cantor-like set. Such limit distribution implies the disappearance of the middle class, with a “gap” between two polarized wealth clusters that widens as the growth rate becomes higher. Hence, we claim that in a highly meritocratic world in which the payoff of the successful individuals is high enough, and in which social mobility is strong, societies tend to look highly “fractalized”.

We also show that a redistribution scheme financed by proportional taxation does not help cure society’s disconnection/polarization; on the contrary, it might increase it. Finally we show that these results are not confined to our analytically worked out examples but are easily extended to a widely used class of macroeconomic and growth models.
Keywords: Inequality and Growth, Education, Technological Change, Wealth Polarization/Pulverization, Iterated Function System, Attractor, Fractal, Cantor Set, Invariant Distribution

Discretionary Power, Rent-Seeking and Corruption

Enrico Colombatto, Univ. di Torino and ICER

Abstract: This article considers corruption as a breach of contract between a principal and an agent. This does not necessarily imply that corruption is immoral, for the nature of the violation actually depends on the features of the underlying contract. In this light, under many circumstances corruption turns out to be a rational and understandable reaction to institutional failures, which are often far from accidental.

To this purpose, three different stylized institutional frameworks are analyzed: developed, undeveloped and transition countries. Contrary to the mainstream approach to corruption, it is here
argued that the origin, scope and consequences of corruption vary significantly across the different frameworks. Normative conclusions should therefore be adjusted accordingly.

Private Property Rights to Wildlife: The Southern African Experiment

Kay Muir-Leresche and Robert H. Nelson†

Abstract: In most nations around the world wildlife are owned and managed by the State. However, in the past 30 years Zimbabwe, Namibia and South Africa have altered their legal regimes to give full control over the use of wildlife to the private owners of the land on which the wildlife are located. Following the privatization of wildlife management in southern African nations, wildlife tourism on private lands has boomed. In Zimbabwe, a majority of many desirable species – including 94 percent of eland, 64 percent of kudu, 63 percent of giraffe, 56 percent of cheetah, and 53 percent of both sable and impala — are found on commercial ranch properties. In Namibia, wildlife populations on private lands have risen by 80 percent since the creation in 1967 of a regime of private wildlife ownership.

Privatization of control over use of wildlife has had more success in promoting biodiversity in the southern African region than any other
policy measure. Other parts of the world may be able to benefit from the lessons learned from the successes of southern African nations in privatization and commercialization of wildlife. Based on the southern African experience, many wildlife managers should reconsider whether positive incentives might not be more effective in the future in promoting wildlife populations than the past club of state commands and controls.

On Money As an Institution

A review essay on Luca Fantacci (2005) La moneta: Storia di un’istituzione mancata (Money: History of a Missing Institution) (Venezia: Biblioteca Marsilio).

Abstract: In this paper I am going to explore some of the major theoretical concepts and ideas in Luca Fantacci’s work devoted to the history of money. As a historical check on Fantacci’s theory I will present various moments in Russian monetary history interpreted in the light of the ideas of the La moneta: storia di un’instituzione mancata. I will compare Fantacci’s theory of division between the unit of account and the medium of exchange with those of Walther Eucken and the Austrian School as well as of some other contemporary authors. A new institutional reading of the evolution of money “money as an institutional compound” is proposed.

La questione del monopolio tra Stato e mercato: un’indagine su Bruno Leoni

Carlo Lottieri
Università di Siena e Icer di Torino
Aprile 2003

Abstract: Il paper prende in esame i principali scritti di Bruno Leoni sul monopolio e sullo Stato, con l’obiettivo di evidenziare come le sue riflessioni sul rapporto tra monopolio ed economia di mercato siano del tutto convergenti con le sue analisi politologiche sul carattere coercitivo dell’apparato statale.

A Mathematical Theory of Evidence For G.L.S. Shakle

Guido Fioretti
Università di Firenze
and
ICER, Torino

Abstract
Evidence Theory is a branch of mathematics that concerns the combination of empirical evidence in an individual’s mind in order to construct a coherent picture of reality. Designed to deal with unexpected empirical evidence suggesting new possibilities, evidence theory has a lot in common with Shackle’s idea of decision-making as a creative act. This essay investigates this connection in detail, pointing to the usefulness of evidence theory to formalise and extend Shackle’s decision theory.

AFTER SOCIALISM: WHERE HOPE FOR INDIVIDUAL LIBERTY LIES

SVETOZAR PEJOVICH
Professor of Economics
Texas A&M University, College Station, and
Imadec University, Vienna
and
Senior Fellow
International Centre for Economic Research
Torino, Italy

ABSTRACT: Institutional restructuring in West Germany and Eastern Europe is a consequence of the failure of two major socialist experiments, National Socialism and Marxism-Leninism. The paper addresses a number of issues
such as: Why was the transition of West Germany in the 1950s more successful than the institutional restructuring of Eastern Europe in the 1990s? Why are the results of institutional changes within the former Soviet
Bloc different from one country to another? Why do we observe no tendency in former Marxist-Leninist states for more efficient institutions to replace less efficient ones?

The Biomedical Workforce in the US: An Example of Positive Feedbacks

Paula E. Stephan
Georgia State University, NBER and ICER1

ABSTRACT
This paper makes the case that the biomedical workforce in the United States is characterized by positive feedbacks. The paper begins by setting out background information on (1) the way in which research is structured in the biomedical sciences; (2) the reward structure among biomedical researchers; and (3) the funding enterprise for biomedical sciences.

Exchange Control in Italy and Bulgaria in the Interwar Period: History and Perspectives

Nikolay Nenovsky
Bulgarian National Bank, University of Orléans, ICER
Giovanni Pavanelli
Department of Economics “G. Prato”, University of Torino
Kalina Dimitrova
Bulgarian National Bank, Sveti Kliment Ohridski University of Sofia, ICER

Abstract: This paper analyses exchange rate control measures adopted in Italy and Bulgaria during the interwar period. The first two sections provide a detailed account of the institutional and economic framework in which these measures were enforced and interpret them utilizing statistical data. In the third section it suggests a theoretical interpretation of exchange control and clearing agreements stressing that these policies were a serious interference in market mechanisms.

Lenin and the currency competition Reflections on the NEP experience (1922-1924)

Nikolay Nenovsky

Bulgarian National Bank and ICER

Summary: Institutional competition stirs the interest of economists following a certain cyclical pattern. In this context, it is very interesting to look back at the experience of Lenin and the Bolsheviks of adopting monetary competition to stabilize their political and economic power after the crash of the war communism (and the attempts to annihilate money). The currency competition lasts less than two years and ends up with establishing the chervonetz as the only monetary unit. As a whole, this can be considered a successful economic experience.

Breaks and Persistency: Macroeconomic Causes of Stock Market Volatility

In the paper we study the relationship between macroeconomic and
stock market volatility, using S&P500 data for the period 1970-2001.

We find weak evidence of long memory in volatility once structural
change is accounted for and a twofold linkage between stock market
and macroeconomic volatility: macroeconomic volatility explains
the persitent dynamics in stock market volatility, while stock market
volatility has significant but short lived effects on output and inflation
volatility.

The Simple Economics of Class Action: Private Provision of Club and Public Goods

Abstract: This article uses economic categories to show how the
reorganisation of civil procedure in the case of class action is not merely
aimed at providing a more efficient litigation technology, as hierarchies
(and company law) might do for other productive activities, but that it
also serves to create a well defined economic organization ultimately
aimed at producing a set of goods, first and foremost among which are
justice and efficiency.

Class action has the potential to recreate, in the judicial domain, the
same effects that individual interests and motivations, governed by the
perfect competition paradigm, bring to the market.

PROPERTY RIGHTS AND EXTERNALITIES: THE UNEASY CASE OF KNOWLEDGE

Abstract: Drawing from Coase’s methodological lesson, this article discusses the specific
case of knowledge, which was for a long time chiefly governed by exchange mechanisms lying
outside the market, and has only recently been brought into the market. Its recent, heavy
“colonization” by the property paradigm has progressively elicited criticism from commentators
who, for various reasons, believe that the market can play only a limited role in pursuing
efficiency in the knowledge domain.

The article agrees with the enounced thesis and tries to provide an explanation of it that relates to the fact that in specific circumstances property-rights can produce distinct market failures that affect the social cost and can consequently prevent attainment of social welfare.

MAINTAINING TAXES AT THE CENTRE DESPITE DECENTRALIZATION : INTERACTIONS WITH NATIONAL REFORMS

Although fiscal (de)centralization literature explains easily the centralization of taxes on the basis of a
superior tax administration capacity, it finds more difficult to argue why in federal and decentralized
systems subnational governments are ready to accept the demise of their taxing powers.

This paper aimsto contribute to the debate by analyzing the conditions under in which sub-national governments are
willing to cede their taxing power to a central authority. A simple bargaining model is used to illustrate the
choices available to both the central (federal) government and the sub-national governments (regions),
where the main contribution lies in the introduction of the expenditure side of the budget and of its
relevance for solving the commitment issue.

POWER AND ENTREPRENEURSHIP IN GERMAN POLITICAL ECONOMY: THE CASES OF WERNER SOMBART AND FRIEDRICH VON WIESER

In the present paper we are going to examine texts by Werner Sombart and Friedrich
von Wieser on entrepreneurship and the capitalist economy using an interdisciplinary
approach focused on economics but also dealing with economic sociology and political
philosophy.

We believe that both authors have been largely neglected, thus overlooking
the main source of the theory of the entrepreneur in debates held in German language
and between Germany and Austria around the 1900s. Without excluding earlier major
references (such as Jean-Baptiste Say, the first French economist at the Collège de
France,) we shall demonstrate that for both our authors the entrepreneur is the keystone
of a renewed understanding of capitalism and the modern economy of their times.

ON FIRM GROWTH AND INNOVATION. SOME NEW EMPIRICAL PERSPECTIVES USING FRENCH CIS (1992-2004)

In the paper we wish to examine if the firms that innovate know a higher growth than the
firm that do not. We use diverse waves of CIS for the French industries over the period 1992-
2004 and carry out different models and new econometric methods (quantile regression). Our
main findings are that innovative firms produce more growth than non innovative firms.

The
estimates show that the results are robust to the different types of models that we have
implemented. Process innovators are more productive in terms of growth than product
innovators when OLS and Random effects models are used. The reverse is true for Fix effect
model and quantile regression.

ECONOMIC AND SOCIAL THOUGHTS OF IVAN POSOSHKOV (1652-1726)

Ivan Pososhkov (1652-1726) is credited with writing Russia’s first systematic economic
treatise. A study on Pososhkov’s economic and social ideas is interesting for no fewer than three
reasons.

First, it would introduce the elements of diversity, originality and distinctiveness which non-
Western European writers bring into the evolution of economic thought, inasmuch as economic and
social thought is a reflection of peculiarities in economic development and inasmuch it is the fruit of
the development of economic ideas.

THE EMERGENCE OF RECIPROCALLY BENEFICIAL COOPERATION

This paper offers a new and robust model of the emergence and persistence of cooperation. In the model, interactions are anonymous, the population is well-mixed, and the evolutionary process selects strategies according to material payoffs.

The cooperation problem is modelled as a game similar to Prisoner’s Dilemma, but there is an outside option of nonparticipation and the payoff to mutual cooperation is stochastic; with positive probability, this
payoff exceeds that from cheating against a cooperator.

THE BULGARIAN ECONOMIC THOUGHT SINCE 1989: A PERSONAL VIEW

Abstract: The objectives of this paper could be brought to three. First, a methodological one, to
explain how economic knowledge disseminates and what its channels are, as well as the basic
transmission mechanisms of economic theory in Bulgaria after the disintegration of the socialist bloc.

Second, a purely informational objective, to present the major topics and issues studied over the period
1989-2009, and, of course, the economists working on them. And a third and parallel task to interpret
theoretically the development of the Bulgarian economic thought during that period, its character and
specificities.

ON THE MEASUREMENT OF LONG-TERM INCOME INEQUALITY AND INCOME MOBILITY

This paper proposes a two-step aggregation method for measuring long-term income inequality and
income mobility, where mobility is defined as an equalizer of long-term income. First, the income
stream of each individual is aggregated into a measure of permanent income, which accounts for the
costs associated with income fluctuations.

Consequently, mobility will have an unambiguously positive impact on social welfare in the sense that for two societies that have identical short term income distributions, the social welfare will be greatest for the socie ty which exhibits most mobility.

EUROPEAN UNION DIRECT PAYMENTS TO FARMERS REVISITED

Abstract: A logistic function framework is used to allocate European Union Common
Agricultural Policy (CAP) direct payments to farmers among the different member
states. Total CAP expenditure is the starting point for the process, which contemplates
two phases.

In Phase 1 expenditure is allocated by taking into consideration the
economic dimension of farms in each country. In Phase 2 the amount allocated to each
member state is further modulated to accommodate both economic efficiency and green
house gas emissions generated by the country

SUR LE REVENU DE SOLIDARITE ACTIVE

La France devrait instaurer en 2009 un “revenu de solidarité active” (RSA) qui remplacerait plusieurs minima sociaux, allocations ou prestations, en se cumulant avec les revenus du travail suivant un barème dégressif qui évoque les projets d’impôt négatif ou d’allocation universelle.

L’article tente de répondre synthétiquement aux interrogations multiples que soulève cette réforme considérable du système de solidarité national. Après en avoir résumé les antécédents théoriques et la genèse, il développe la triple motivation du RSA – rationalisatrice, incitative et redistributive – et conclut par des propositions concrètes sur ses
modalités de réalisation.

BACKWARD STOCHASTIC PDEs RELATED TO THE UTILITY MAXIMIZATION PROBLEM

We study utility maximization problem for general utility functions using dynamic programming
approach. We consider an incomplete nancial market model, where the dynamics of asset
prices are described by an Rd-valued continuous semimartingale. Under some regularity assumptions we
derive backward stochastic partial di erential equation (BSPDE) related directly to the primal problem
and show that the strategy is optimal if and only if the corresponding wealth process satis es a certain
forward-SDE. As examples the cases of power, exponential and logarithmic utilities are considered.

DYNAMIC ANALYSIS OF THE BEHAVIOURAL PATTERNS OF THELARGEST COMMERCIALBANKS IN THE RUSSIAN FEDERATION

This paper presents a pattern behavio ral analysis of 100 largest Russian commercial
banks by total assets during an eight- year period: from the first quarter of 1999 to the second
quarter of 2007. Bank performance indicators are analyzed. Structural similarities in the
development of the banks are examined.

A cluster analysis is applied to determine banks with a similar structure of operations. This analysis allows to estimate how the structure of the Russianbanking system has been changing over time. In particular, it allows to identify prevailing patterns in the behavior of Russian commercial banks and to analyze the stability of their
position in a particular pattern.

ON THE PRIVATIZATION OF“STOLEN GOODS” IN CENTRAL AND EASTERN EUROPE

Many scholars assert that the process of privatizing state-owned firms in Central and
Eastern Europe has been a success because privatized firms are performing better than
they did before. The assertion is an empty piece of poetry. To begin with, privately
owned firms are more efficient than state owned firms.

Hence, the evaluation of the process of privatization in Central and Eastern Europe does not depend on some
measured efficiency of privatized firms. The evaluation of privatization should be based
on the contribution of privatized firms to the attainment of two major initial objectives
of institutional restructuring in post-communist Central and Eastern Europe: the
acceptance of capitalism and the development of free-market, private-property
institutions.

A COMPARATIVE EVALUATION OFSPACIALLYTARGETED ECONOMIC REVITALIZATION PROGRAMSIN THE EUROPEAN UNION AND UNITED STATES

This paper compares and contrasts the United States federal Empowerment Zone and
European Union Objective 2 programs that geographically target economic
revitalization incentives. Since 1989, both programs have designated predominately
industrial or urban areas as being distressed and worthy of government incentives in
three separate rounds.

The paper uses a probit econometric model to comparatively
evaluate the characteristics of the areas that were targeted.

Multivariate option pricing with copulas

Abstract: In this paper we suggest the adoption of copula functions in order
to price multivariate contingent claims. Copulas enable us to imbed the
marginal distributions extracted from vertical spreads in the options markets
in a multivariate pricing kernel.

We prove that such kernel is a copula
fucntion, and that its super-replication strategy is represented by the
Fréchet bounds. As applications, we provide prices for binary digital options,
options on the minimum and options to exchange one asset for another.

For each of these products, we provide no-arbitrage pricing bounds,
as well as the values consistent with independence of the underlying assets.
As a …nal reference value, we use a copula function calibrated on historical
data.

“Rain Follows the Plow” and Dryfarming Doctrine: The Climate Information Problem and Homestead Failure in the Upper Great Plains, 1890-1925

In the late 19th and early 20th centuries, the North American agricultural frontier moved into semi-arid
regions of the Great Plains where farming was vulnerable to drought. Farmers who migrated to the region
had to adapt their crops, techniques, and farm sizes to better fit the environment. But there was very
incomplete information for making these adjustments, and ultimately they were insufficient: too many small,
dry-land wheat farms were founded, only to be abandoned in the midst of drought. Two episodes of
homestead settlement and collapse in western Kansas in 1893-94 and in eastern Montana in 1917-21 are
examined.

We go beyond the existing literature by explicitly detailing the weather information problem
facing settlers and showing precisely why widespread homestead failure occurred. We present a Bayesian
learning model to indicate how new climate information was incrementally incorporated to revise views of
agricultural prospects. Primary data are used to show the lagged response of homesteaders to new drought
information and to illustrate the differential impact of drought on small farms. Dryfarming doctrine arose as a
solution to the problems faced by farmers in the region. Despite its optimistic claims, it was an imperfect
response to drought.

Frank Knight and Original Sin

Frank Knight was the key person in founding the Chicago school of economics. In this respect he was a seminal figure in the history of twentieth century economics. Yet, few current economists know much about Knight. After his early success in 1921 with Risk, Uncertainty and Profit – Knight’s work best known to current economists — he wrote more in the manner of a moral philosopher than an economic scientist.

This paper examines the thinking of the later Knight, the approach to social analysis that he adopted for most of career and including all of his years in the Chicago economics department. Knight was known for his antagonism to traditional Christian religion. Yet, penetrating only slightly below the surface, his thinking is revealed to follow closely in a Christian mode. Indeed, Knight’s moral philosophy was a secular form of Calvinism.

HISTORICAL PERSPECTIVES ON EXOTIC PESTS AND DISEASES IN CALIFORNIA

In the late-nineteenth and early-twentieth centuries, California agriculture underwent a
fundamental transformation as the state’s farmers shifted from the production of wheat to a rich
variety of tree, vine, and row crops.

This transformation required a wholesale shift in the
production processes, with new farming practices, new labor systems, and new marketing
structures. But success also required new legal, scientific, and institutional structures to
overcome the serious threat that diseases and pests posed to the state’s new intensive fruit and
nut culture.

This paper examines a number of case studies, showing how specific pests and
diseases nearly destroyed commercial production of grapes, and several tree crops and how
farmers responded to these threats.

One response was to demand government help to overcome
the free rider problem and other sources of market failure. The result was to strengthen the
scientific infrastructure within the University of California and the USDA and to enact
quarantine legislation to limit the free movement of plants and fruit. We argue that these
instances the private and social returns to collective actions far exceeded the costs.

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