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Agriculture and Human Values 18: 337–338, 2001.

Book review

Development Microeconomics the subject of chapter 8. The authors rightly point out
By Pranab Bardhan and Christopher Udry that the observed existence of ex post risk pooling
Oxford, UK: Oxford University Press, 1999, 242 pp. arrangements in a variety of communities in devel-
Pb, ISBN 0-19-877371-4 oping countries has led researchers to study, and
subsequently reject, the notion of Pareto optimal risk
AMITRAJEET A. BATABYAL pooling. Next, the authors use a simple model to argue
Department of Economics, Rochester Institute of that although households in poor countries do engage
Technology, Rochester, NY 14623-5604, USA in a fair amount of consumption smoothing, this does
not provide evidence in favor of the permanent income
Amitrajeet A. Batabyal is Arthur J. Gosnell Professor model. Finally, this chapter sheds light on the behavior
of Economics at the Rochester Institute of Technology. of poor people who wish to ensure that their incomes
His research interests include development, environ- do not vacillate too severely. The authors convinc-
mental, and natural resource economics, and the ingly argue that relative to the wealthy, poor people
interface of economics with philosophy and political “will choose activities that reduce the variance of their
science. He has published over 200 books, book incomes . . . [and] have lower expected incomes . . .”
chapters, book reviews, and journal articles in these (p. 108).
areas. Chapter 12 uses well-known models to discusses
technological change in developing countries. First,
This book provides an eclectic perspective on it is noted that the technological transformation of
some salient contemporary issues in development production in poor countries involves a rather elabo-
economics. The intention of the authors “is to be rate process of experimentation and learning that the
selective and illustrative, to give examples of analytic authors call “social learning” (p. 166). Second, this
thinking on some of the major issues” (p. v). The chapter provides a helpful discussion of the effects of
focus of this book is on microeconomic issues; as having an inadequately trained labor force. Specifi-
such, the book selects and discusses, from a theoret- cally, the authors argue that economies with an inade-
ical perspective, a number of issues that fall under quately trained labor force are likely to be “trapped”
the rubric of development microeconomics. Except in when confronted with new technologies that require a
passing, this book does not cover the vast empirical highly skilled labor force.
literature on development. In the rest of this review, The environment and development constitute the
I shall concentrate on six of the book’s seventeen subject matter of chapter 13. The chapter begins
chapters. This should provide the reader with a flavor well by correctly pointing to a “two-way relation-
for the intellectual contributions of this book. ship between poverty and environmental degradation”
Chapter 6 focuses on the rural land market. An (p. 168). However, the remainder of this chapter leaves
important question here is this: Why don’t large land- room for improvement. Although the environment and
lords sell their land to small family farmers and exer- development is a very active area of current research,
cise their power by seizing the surplus that would arise the authors devote only a few pages to this broad –
from this efficient reallocation? The authors use two and increasingly interdisciplinary – area of inquiry.
kinds of principal-agent models to shed light on this Specifically, the authors focus on property rights and
and related conundrums about the rural land market. trade policy. The discussion of trade policy is not only
The first model shows that sharecropping is typically very brief but it is based on Copeland and Taylor
a compromise between the twin objectives of risk (1994). One wonders why the authors did not base
sharing and the provision of incentives. The second their discussion on Copeland and Taylor (1995). Inter
model is more interesting. It shows the impact that alia, this paper builds on and generalizes the analysis
a limited liability constraint has “on the nature and in the earlier paper. More importantly, this chapter
efficiency implications of the tenancy contract” (p. 74). contains no discussion of topics like (i) the meaning
Risk and insurance in an agricultural economy is of sustainable economic development, (ii) the distinc-

tions between man made and natural capital and their state can play in building the institutional base of an
roles in sustainable development, and (iii) the sali- economy. Here are two examples of what I have in
ence of ecological concepts in comprehending the mind: The discussion of institutional arrangements
behavior of renewable resources (forests, rangelands) notes that such arrangements are less the result of
that provide key services to many in developing coun- “a society’s decentralized attempt to realign property
tries. Some discussion of these topics – based on a rights and contracts in the light of new collective
source such as Dasgupta (1996) – would have signifi- benefit-cost possibilities . . .” (p. 222), and more the
cantly improved the quality of the discussion in this result of strategic distributive conflicts. Second, the
chapter. As it stands right now, this chapter provides chapter perceptively points out that the distinction
a rather strait jacketed perspective on the leading between a strong and a soft state “lies not in the extent
issues of the day in environment and development of intervention, but in its quality” (p. 229, emphases in
economics. original).
Chapter 15 discusses the phenomenon of a dual In sum, with the exception of the chapter on the
economy. First, a relatively spartan model of agricul- environment and development, this is fine book. It
ture and manufacturing in a developing country is used provides a competent discussion and synthesis of the
to show that “industrialization, with its attendant inter- development microeconomics literature. As such, I
sectoral movement of labour, puts pressure on the food recommend this book to readers who are interested in
price and the industrial wage rate” (p. 205). In such learning more about the nexuses between intelligent
a setting, will capital accumulation have a salubrious theoretical analysis and some salient contemporary
effect on income inequality? Pointing to the need for issues in development economics.
making improvements in agricultural productivity, the
authors show that this question cannot be answered
unambiguously. Although the analysis presented in References
this chapter is cogent, it would have been more inter-
esting had the authors allowed for population growth Copeland, B. R. and M. S. Taylor (1994). “North–south trade
in the models that they so ably discuss. and the environment.” Quarterly Journal of Economics 109:
Chapter 17 is the last and the most engrossing 755–787.
chapter in this book. The subject of this chapter Copeland, B. R. and M. S. Taylor (1995). “Trade and trans-
boundary pollution.” American Economic Review 85: 716–
is institutional economics and the state in economic
development. The authors make a number of insightful Dasgupta, P. (1996). “The economics of the environment.”
points about the strengths and the weaknesses of the Environment and Development Economics 1: 387–428.
“new” institutional economics, and the role that the