Four Papers I Read Today

Scott Masten, "Public Utility Ownership in 19th-Century America: The 'Aberrant' Case of Water" (Jan 2009). A very interesting historical/empirical study of why utilities for water supply, in contrast to other public utilities, became predominantly publicly owned before the end of the 19th century. Masten finds it was not a consequence of any special public financing issues or scale economies; rather public ownership of water utilities was largely a consequence of two factors: (1) the comparative simplicity of waterworks operation and management, which immunized them public water supply companies to some extent from inefficiencies usually associated with government ownership; and (2) friction between cities and private water companies relating to (a) extension of service to sparcely populated areas and (b) prolonged supply disruptions stemming from installation and repair of waterworks. Among the more interesting implications Masten draws from his historical analysis is that current efforts by World Bank and other organizations to induce developing countries to private waterworks as a mechanism for reducing water shortages may be misguided:

If, despite an institutional environment conducive to private ownership, American water and sanitation systems are overwhelmingly publicly owned and operated, it is reasonable to expect privatization to yield long-term gains in developing countries where the environment for private enterprise may be much less hospitable?

Masten's article provides a very useful reminder that the structure of property ownership is not simply a matter of ideology; nor is private ownership necessarily more economically efficient and productive than public ownership. Among other things, transaction costs matter!

Katherine Casey, Rachel Glennerster, and Edward Miguel, "Reshaping Institutions: Evidence on External Aid and Local Collective Action," NBER Workshop Paper 17012 (May 2011). The authors examine the short- and long-term consequences of a specific international aid program for Sierra Leone and find that, in the short-run, the aid program did achieve its aim of improving provision of local public goods, but failed to achieve the longer-run aim of improving local institutions for collective action. The implications of these disparate findings are interesting. On the one hand, the authors note, "[t]he results contradict the current popular notion in foreign aid circles that CDD ["community directed development"] is an effective method to initiate social change or fundamentally alter local decision-making processes." On the other hand, the "results also challenge the aid pessimist's view that external assistance cannot improve the lives of the poor in countries with weak institutions." Hopefully, other scholars will build on this work by applying the same analytical model to examine aid projects in different developing countries.

Marjan Peeters and Micolien van der Grijp, "Emerging national climate legislation in EU Member States: in search of proper legislative approaches," Maastrict Working Papers, Faculty of Law, 2011-6 (May 2011). A nice comparison of the French and English approaches to national climate legislation (supplemental to the European Union's Emissions Trading Scheme). The English approach is completely centralized and top-down, as is the norm within the UK's system of government. The French program, by contrast, is largely decentralized, with regions given a substantial amount of freedom to determine how national goals will be met. However different they may be, however, the national climate laws of France and the UK share one crucial feature in common: the lack of any enforcement apparatus for ensuring that the legislated goals are met. To my mind, that renders the goals of each country's climate law purely aspirational.

Last, but by no means least, Jeremy Edwards and Sheilagh Ogilvie, "What Lessons for Economic Development Can We Draw from the Champaign Fairs?," CESifo Working Paper No. 3438 (April 2011). This paper turns on its head just about everything we thought we knew about the Champaign fairs, and their significance for economic theories of the institutional basis for long-distance, impersonal exchange. The authors argue, provocatively but pretty convincingly, that the high level of contract enforcement, which made the fairs so successful, did not arise from private-order or corporative mechanisms, but instead was provided by public institutions. The paper seriously restructures our understanding of how and why legal-economic institutions arise.