Agriculture Reference
In-Depth Information
development are not working. In the light of these facts, the question one must ask is why
are countries in the region not taking advantage of the available opportunities to expand
output and enhance market access (Van Schalkwyk and Jooste, 2002). In the words of
the Executive Secretary of the SADC (2003), '…it is a question of management'. But he
recognizes that the question goes deeper than that and adds: '…we are looking at irrigation…
at other issues, such as agrarian reform, how we can bring extension services to the rural
areas, how we can use information technology…' (Anonymous, 2003). A study conducted
in Lesotho (Van Schalkwyk
et al.
, 2002) identified numerous technical, managerial, and
institutional factors that hampered the success of the government-driven agricultural
production programmes in the country.
These views go to the heart of the arguments that proponents of the New Institutional
Economics (NIE) have been making for sometime now. As soon as it became clear that
Adam Smith's reference to the 'invisible hand' idea never meant that a selfish, mindless,
emotionless and value-free mechanism exists for allocating resources to meet the productive
ends of society, economists became even more single-minded in advancing the notion of
the primacy of institutions. According to North (1992), the efficient markets that are
predicted by the neo-classical assumption of instrumental rationality are not achievable
in reality because of the numerous shortcomings in the economic system. For instance,
the induced innovation model that assumes perfect markets for factors and products, fails
to consider situations where prices do not convey all the information needed to decide
between alternatives courses of action. The model also assumes that all economic agents in
a transaction face the same prices, which would mean that transactions are cost-free and
asset distribution would have no effect on efficient allocation of resources, among other
conveniences. But nothing can be farther from the truth.
Everybody from North (1992) to Dequech (2002) and Frank (2009), doubts that we are
close to a definitive theory of institutions that provides the final answers to these questions.
But it is not debatable that transactions involve costs which can often be so high that
they constitute veritable obstacles to production and exchange. These transaction costs
embrace elements as diverse as the costs of adjustment, information, measuring attributes,
and negotiating, monitoring, and enforcing contracts. Human beings are frequently
constrained by incomplete information as well as the limited mental capacity for processing
whatever information is available (North, 1992). Attempts to overcome these shortcomings
impose considerable costs on economic agents. As well, since different economic agents
face different prices, there is a tendency for some people to take advantage of others, again
due to differential access to information about current and prospective costs and prices,
a phenomenon that Akerlof (1970) exploited and elaborated into the sub-discipline of
information asymmetries. Information about the possibilities open to human beings to
better their lives is never perfect and they have to act often on the basis of hunches and gut
feelings which are presented under the more dignified caption of 'perceptions'.
Search WWH ::
Custom Search