Rahul nilakantan

Paper abstract

Implications of Globalized Agriculture for a Federal Democratic State: A property Rights Perspective from India (with Samar Datta and Milindo Chakrabarti)

The present paper attempts to place the recent WTO negotiations on agricultural trade in the property rights framework of Coase theorem. There is a natural analogy between property rights over a good/asset, and the rules of trade as applied to the “three pillars” notions of levels of domestic support, market access, and export subsidies in agricultural trade, that are the subject matter of ongoing multilateral negotiations at WTO. If we recognize that each nation’s trade distortionary policies under each pillar impose externalities on the other, then there is scope for a Coasian negotiation process between nations to deal with the externalities and therefore maximize value. Coase theorem predicts the value maximizing final allocation of property rights as the outcome of a negotiation process given the absence of transactions costs, a well defined initial property rights allocation, and the absence of wealth effects. In the WTO context, this Coasian reallocation of property rights is analogous to the negotiation process over the rules of trade governing the three pillars. We find that the conditions under which the negotiation process operates cannot lead to the value maximizing outcome for two reasons. First, it is generally true that the value maximizing final allocation of property rights is determined by the features of the economic environment within which the negotiation takes place. We argue that the current negotiation framework fails to properly account for some of the key features of the economic environment such as imperfectly competitive factor and output markets, non-separability of production and consumption decisions, and incomplete financial markets, among others. Consequently, negotiations based on an inaccurate understanding of the economic environment cannot result in the value maximizing outcome. Even if there was a proper understanding of the economic environment, we provide examples of failures of the Coasian preconditions, that would militate against the realization of the value maximizing outcome. Second, certain federal countries like India suffer from the problem of bounded rationality: the identification of their interests is complicated by (i) the failure of higher levels of government to consult with their counterparts at lower levels, and (ii) the failure of the executive branch to consult with the legislative. This weakens their ability to recognize, and therefore negotiate towards a value maximizing outcome.

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