The Economics of Rural Organization.

Markets in LDCs or developing countries are permeated by imperfections of institutions, structures and operations. Commodity and factor prices are often not organized adequately (or rather badly) and the economic agents often respond to economic signals and incentives in a way which do not reflect the "real cost" of commodities or factors because of the existence of various distortions in those markets. The editors (Karla Hoff, Avishay Braverman and Joseph Stiglitz) of this volume examine and analyse the concept and the impact of "market failure" in a rural agrarian economy, and argue that governments have an important role to play in integrating markets and modifying prices to be conducive to economic development. This book aspires to fill the gap between the competing explanations for such market failures and the corresponding remedies (Planning, Institutional and Chicago School approach) by pointing out that "individual rationality or optimization will not in general coincide with social rationality". I am thrilled to see such a book discusses the long neglected issues related to rural economies.

Apart from an expository introductory chapter, this book is a collection of 28 different papers. It has four main parts containing these 28 chapters (papers). Each part has methodological foundations with theoretical analyses, complemented with a number of case studies obtained from different developing countries.

Part I consists of chapters 2 through 10 and covers a wide range of issues related with rural credit markets that include problems and puzzles associated with imperfect information and policy perspectives with respect to government intervention. In chapter 3, Braverman and Guasch analyze the administrative failures in government credit programs and in the next chapter Stiglitz presents a lucid debate about the relative merits of peer monitoring and its effect on credit markets (for example, Grameen Bank in Bangladesh is operating successfully, while in India, Jahar Employment Planning Scheme has faltered). In chapter 5, Udry presents a case study from northern Nigeria where so-called moral hazard and adverse selection hypotheses are not decisive for the organization of agrarian institutions. Feder, Lau, Lin and Luo, in chapter 6, present another study from rural China where credit market is segmented between a formal sector and an informal sector. In chapter 7, a case study from Pakistan is presented by Aleem who finds that the informal credit market is characterized by excess capacity and monopolistic competition. Chapter 8 presents an example of government intervention in the credit market from Thailand and analyzes the existence of an informal sector even when the formal sector is developed and subsidized by government. These authors (Siamwalla, et al.) argue that the informal sector in Thailand is competitive and the high interest rate reflects high information cost, not the scarcity of funds. Clive Bell presents a case study from rural India where credit markets range along a continuum from competitive to monopolistic, to show that government intervention has not produced the desirable effect. Similarly, Kislev and others present the experience from Israel which reveals that cooperative credit markets do not always function efficiently and more importantly, can not survive a highly unstable macroeconomic environment.

Part II consists of chapters 11-16 that present an interesting debate about the role of property rights (land titles and security on land prices) on the growth of agricultural productivity. Chapters 12 and 13 discuss under what conditions government interventions in the land right system would promote development, while chapters 14, 15 and 16 present empirical experiences of such redistributive land reforms policies from Philippines, Sub-Saharan Africa and Colombia. Feder and Feeny in chapter 12 hypothesize that with increased property rights and security on land prices productivity will rise. In chapter 13 Feder claims from the experience of Thailand that posession of legal land ownership has a significant impact on farmer's agricultural performance. Increased landownership encourages more participation in the formal credit market which results in higher output. However, Migot-Adholla, et al., in chapter 14, and Hayami and Otsuka in chapter 15, demonstrate that such land reforms by government fiat may be counter-productive. Migot-Adholla, et al. conduct a statistical test and conclude that property rights were not the instrument for increased productivity in Kenya, Ghana and Rwanda, suggesting that factors other than land tenure are constraining for agricultural development. Hayami and Otsuka find that 1972 land reforms in Philippines has degenerated the farming community into two sectors: noncultivating well-to-do leaseholders/landlords, and landless agricultural laborers. Similarly, Janvry and Sadoulet notice the recent rising conflict between redistributive and modernizing forces of land reforms in Colombia where reforms started long ago (in the 1930s). Recently, modernized landlords, who benefitted from Green Revolution technology in the seventies, have attempted to stop or block the latest round of land reform policies with their new political power.

Part III of the book, consisting of chapters 17-23, addresses taxation, transfers and government pricing policies in the rural sector of the developing countries. It is the largest sector of the most developing countries and, therefore, is also the main source of tax revenue which.leads to the question of optimal taxation. With perfect information and perfect risk markets a pure land tax may be useful for maximization of revenue and social welfare but not so in the case of imperfect information and markets. Karla Hoff, in chapter 18, suggests the use of a right mix of output and land taxes in lieu of pure land tax for larger government revenues and higher social welfare. Jonathan Skinner, in chapter 19, considers the three main drawbacks of pure land tax as opposed to output tax and from a simulation study concludes that administrative cost associated with land tax is the main reason for its seldom use. Timothy Besley, in chapter 20, reinforced the point that the design of government policies of redistributing income must take into account of the full array of constraints faced by developing countries including administrative cost. David Newberry, in chapter 21, comments that government programs often work in a way different from their intended objective. For example, according to him, "On standard egalitarian criteria, it makes little sense to take money from poor farmers to give it to less poor urban dwellers, or to subsidize grains disproportionately consumed by relatively high income urban dwellers". In chapter 22, Braverman, et al. analyse the ad hoc price stabilization policies implemented by Brazil (Brazilian price band approach) and conclude that it has little effect on reducing the price instability of consumer goods. In another case study of Indonesia's poverty alleviation through regional targeting by government, Martin Ravallion finds the outcome is rather mixed. The effect on aggregate poverty of this policy is no better than a uniform redistribution policy. Regional targeting may, however, reduce the adverse effects on poverty during recessionary times.

The last part of the book, chapters 24-29, discusses the issue of technological change and its impact on rural economy. It specifically analyzes the choice of irrigation technology, technological determinants of the scope of water markets, agricultural extensions and income inequality in the rural sector. In Chapter 25, Fahred Shah, et al., suggest politically feasible institutional arrangements to create a water market to solve the water management problems in both surface and ground water systems. In chapter 26, Avinash Dixit explores the consequences of the simultaneous presence of economies of scale and risk on the adoption of new technology. He suggests less diversification will follow in the absence of risk sharing than in the social optimum with perfect risk sharing. John McIntire, in chapter 27, examines the consequence for factor market for a particularly harsh physical environment: the semiarid regions of Africa. He reports that government intervention to attack market imperfections have not been successful. In chapter 28, Gershon and Feder analyze the impact of training and visit (T&V) system in India. Their conclusion is that T&V system is, in general, successful as more specialized service yields a higher social return. In chapter 29, Peter Lanjouw and Nicholas Stem examine the distribution of income and land holding in the north Indian village of Palanpur between 1957-1984 and conclude "it would be difficult to argue that market imperfections ... played a major role in determining inequality and its changes in Palanpur."

This book provides extensive and almost up-to-date references and helpful subject and author indices. The book is well-edited and will be a valuable source to academicians. This book, while not oversimplifying, presents an overview of the major problems confronted by the rural economies in developing countries and leaves the reader with a clear understanding of its importance for growth and development. In many developing countries there are a number of factors that may limit the extent to which heavy reliance on either government intervention or free market forces is possible. Obviously, the answer will depend on the particular circumstances in individual countries.

Subarna K. Samanta Trenton State College