Agriculture and Human Values 18: 337–338, 2001.
Book review
Development Microeconomics
By Pranab Bardhan and Christopher Udry
Oxford, UK: Oxford University Press, 1999, 242 pp.
Pb, ISBN 0-19-877371-4
AMITRAJEET A. BATABYAL
Department of Economics, Rochester Institute of
Technology, Rochester, NY 14623-5604, USA
Amitrajeet A. Batabyal is Arthur J. Gosnell Professor
of Economics at the Rochester Institute of Technology.
His research interests include development, environ-
mental, and natural resource economics, and the
interface of economics with philosophy and political
science. He has published over 200 books, book
chapters, book reviews, and journal articles in these
areas.
This book provides an eclectic perspective on
some salient contemporary issues in development
economics. The intention of the authors “is to be
selective and illustrative, to give examples of analytic
thinking on some of the major issues” (p. v). The
focus of this book is on microeconomic issues; as
such, the book selects and discusses, from a theoret-
ical perspective, a number of issues that fall under
the rubric of development microeconomics. Except in
passing, this book does not cover the vast empirical
literature on development. In the rest of this review,
I shall concentrate on six of the book’s seventeen
chapters. This should provide the reader with a flavor
for the intellectual contributions of this book.
Chapter 6 focuses on the rural land market. An
important question here is this: Why don’t large land-
lords sell their land to small family farmers and exer-
cise their power by seizing the surplus that would arise
from this efficient reallocation? The authors use two
kinds of principal-agent models to shed light on this
and related conundrums about the rural land market.
The first model shows that sharecropping is typically
a compromise between the twin objectives of risk
sharing and the provision of incentives. The second
model is more interesting. It shows the impact that
a limited liability constraint has “on the nature and
efficiency implications of the tenancy contract” (p. 74).
Risk and insurance in an agricultural economy is
the subject of chapter 8. The authors rightly point out
that the observed existence of ex post risk pooling
arrangements in a variety of communities in devel-
oping countries has led researchers to study, and
subsequently reject, the notion of Pareto optimal risk
pooling. Next, the authors use a simple model to argue
that although households in poor countries do engage
in a fair amount of consumption smoothing, this does
not provide evidence in favor of the permanent income
model. Finally, this chapter sheds light on the behavior
of poor people who wish to ensure that their incomes
do not vacillate too severely. The authors convinc-
ingly argue that relative to the wealthy, poor people
“will choose activities that reduce the variance of their
incomes . . . [and] have lower expected incomes . . .”
(p. 108).
Chapter 12 uses well-known models to discusses
technological change in developing countries. First,
it is noted that the technological transformation of
production in poor countries involves a rather elabo-
rate process of experimentation and learning that the
authors call “social learning” (p. 166). Second, this
chapter provides a helpful discussion of the effects of
having an inadequately trained labor force. Specifi-
cally, the authors argue that economies with an inade-
quately trained labor force are likely to be “trapped”
when confronted with new technologies that require a
highly skilled labor force.
The environment and development constitute the
subject matter of chapter 13. The chapter begins
well by correctly pointing to a “two-way relation-
ship between poverty and environmental degradation”
(p. 168). However, the remainder of this chapter leaves
room for improvement. Although the environment and
development is a very active area of current research,
the authors devote only a few pages to this broad –
and increasingly interdisciplinary – area of inquiry.
Specifically, the authors focus on property rights and
trade policy. The discussion of trade policy is not only
very brief but it is based on Copeland and Taylor
(1994). One wonders why the authors did not base
their discussion on Copeland and Taylor (1995). Inter
alia, this paper builds on and generalizes the analysis
in the earlier paper. More importantly, this chapter
contains no discussion of topics like (i) the meaning
of sustainable economic development, (ii) the distinc-
338 B OOK REVIEW
tions between man made and natural capital and their
roles in sustainable development, and (iii) the sali-
ence of ecological concepts in comprehending the
behavior of renewable resources (forests, rangelands)
that provide key services to many in developing coun-
tries. Some discussion of these topics – based on a
source such as Dasgupta (1996) – would have signifi-
cantly improved the quality of the discussion in this
chapter. As it stands right now, this chapter provides
a rather strait jacketed perspective on the leading
issues of the day in environment and development
economics.
Chapter 15 discusses the phenomenon of a dual
economy. First, a relatively spartan model of agricul-
ture and manufacturing in a developing country is used
to show that “industrialization, with its attendant inter-
sectoral movement of labour, puts pressure on the food
price and the industrial wage rate” (p. 205). In such
a setting, will capital accumulation have a salubrious
effect on income inequality? Pointing to the need for
making improvements in agricultural productivity, the
authors show that this question cannot be answered
unambiguously. Although the analysis presented in
this chapter is cogent, it would have been more inter-
esting had the authors allowed for population growth
in the models that they so ably discuss.
Chapter 17 is the last and the most engrossing
chapter in this book. The subject of this chapter
is institutional economics and the state in economic
development. The authors make a number of insightful
points about the strengths and the weaknesses of the
“new” institutional economics, and the role that the
state can play in building the institutional base of an
economy. Here are two examples of what I have in
mind: The discussion of institutional arrangements
notes that such arrangements are less the result of
“a society’s decentralized attempt to realign property
rights and contracts in the light of new collective
benefit-cost possibilities . . .” (p. 222), and more the
result of strategic distributive conflicts. Second, the
chapter perceptively points out that the distinction
between a strong and a soft state “lies not in the extent
of intervention, but in its quality” (p. 229, emphases in
original).
In sum, with the exception of the chapter on the
environment and development, this is fine book. It
provides a competent discussion and synthesis of the
development microeconomics literature. As such, I
recommend this book to readers who are interested in
learning more about the nexuses between intelligent
theoretical analysis and some salient contemporary
issues in development economics.
References
Copeland, B. R. and M. S. Taylor (1994). “North–south trade
and the environment.” Quarterly Journal of Economics 109:
755–787.
Copeland, B. R. and M. S. Taylor (1995). “Trade and trans-
boundary pollution.” American Economic Review 85: 716–
737.
Dasgupta, P. (1996). “The economics of the environment.”
Environment and Development Economics 1: 387–428.