Get Complete Project Material File(s) Now! »

Institutional Economics: Theory of Institutional Change

Addressing the complex issues of understanding reality, one cannot ignore that the issues are multidisciplinary. This study employs institutional economic approach in addressing the question of youth integration into smallholding farming, given that it permits the study to combine economical and sociological discipline. Family farming can be either considered as institution or organization. The institutional change theory is, hence, relevant family farming embedded in social institution. This section, I am going to show that given family farming can be considered as an institution and an organization, the institutional change based on ―the shared mental model‖ is relevant in explaining the question of why smallholder farmer quitted their farm.

Concept of Institution

Self-interested behavior embedded in human mind and ignorance, which individuals face when they interact; generate the potential inter-individual conflicts and social interaction issues. Inventing social rules and following the social rules are, hence, the devise for restricting self-interest of all or some member of the society and to better mutual advantage in exchange process (Mantzavinos, 2001). Therefore, enforcements are the characteristic of the institution.
Motivations derive from self-interest seeking (economic aspect) arise social problem and inter-individual conflict. Social rules and institutions exist as the mean of solving social problem and overcoming the social conflict (Mantzavinos, 2001).
Due to the limits of human cognitive capacity plus the complexity of the environment (social aspect), individuals mobilize their energy only when the new problems arise. They, then, classify the new problems into situation where it is similar to the old existing one that they used to solve. Then it follows the routine.
Institutions exist as rule of the game to stabilize expectation and to reduce uncertainty of agents (Mantzavinos, 2001). Institutions are, therefore, defined as social rules i.e. rules of the game that shape human interaction in the society through mechanism of social control either formal or informal (North, 1990). They are patterns of behavior serving to solve the problem of cooperation and providing the platform for conflict resolution (Mantzavinos, 2001).
Institution is generally referred to every kind of organization. It is necessary to distinguish between institution as rules of the game and organization (or institution) as corporate entity, for example, the bank (Ellis, 1988; Mantzavinos, 2001; North, 1990). Organization as corporate entity is a group of individual so-called collective units characterized by a set of procedural rules that define the coordination of individual members to achieve the common objective or to solve a common problem. When organizations deal with other organizations or with individuals, they are submitted to the general social rules which are equally constrained by general rules of the game. That social rule is called “the institutions” (Mantzavinos, 2001, pp. 83-84).
Mantzavinos (2001) distinguishes formal and informal institutions based on its enforcement agency. Formal institution is enforced by law. Informal institution can be classified into three categories: (1) conventions as self-policing institutions, (2) moral rules with individual as the first party controller and (3) social norms which are enforced by the member of the social group.

Institutional Change theory

Depending on the social-cultural context, individuals have different mental models and capacities to process information. They therefore act differently when making their choice in the economics of exchange (North, 1995; Williamson, 2000).
Because of the economic interest, people will try to maximize its own benefit which is not necessary to add value to the economies at all such as rent seeking, free riding. This could lead to tragedy of the common (Chang, 2010). The act in seeking such personal interest with guile is called “opportunism” (Williamson, 1985, p. 30). Normally, people intended to rationally economization orientation. But since they have limited capacity to make their choice due to the limited “cognitive competence”, the situation of behavioral uncertainty arisen. Williamson (1985) calls this “bounded rationality”. Based on this “behavioral uncertainty”, Williamson views the emergence of institution as a contractual relation. Contractual relation is never perfectly defined; contractual gap is, hence, occurred. Parties involve the relation, devise machinery to “work thing out” that is to invest their specific assets (asset specificity) in order to specialize in the governance structure. Objective is to minimize the transaction cost9 as well as to safeguard the behavioral uncertainty; finally, alternative mode of organization is defined. This is known as organizational theory.
Williamson„s organizational theory is oriented towards industrial firms especially related to the aspect of organization management and contractual interrelation between organization that is it evolves mainly at the institutional design and formal rule (Chavance, 2009, p. 79). In this case, transaction cost framework is often applied in which production cost, governance cost and alternative mode organization are the theme of analysis (Williamson, 1985, pp. 43-63). In addition, according to the four level of institutional analysis, Williamson (2000, p. 597) distinguishes between the institutional environment and institutional arrangements which correspond to informal and formal rules. Since it takes very long time to change informal rules, it would be difficult to conduct a field study at this level. Hence, Williamson tends to analyze the institutional only formal rules. However, Slangen, Loucks, & Slangen (2008, p. 84) observe that there have been many types of cultural shifts during the last one hundred years suggesting that institutional change at this level is not that time dependent. In this regard, it is probably a limitation of Williamson organizational theory if the informal rule is taken into account. Instead, I will consider North‟s theory of institutional change.
Due to socio-cultural factors, people are influenced by the system of belief, ideology and other aspects of behavior such as a form of altruism and self-imposed standard of conduct. This will influence their choices (North, 1990, pp. 20-25). Institutions are, hence, defined as the rule of game in a society where human impose constraint to structure/shape the human interaction that create the incentive systems10 for human exchange in either politic, social or economics. It is about rules and norms both formal and informal with their enforcement characteristics in the society. If institution is rules of the game, organizations are, then, players in within society that can be individual or group who share common purpose to achieve objectives such as political body (political parties, senate, …), economic bodies (firms, trade unions, family farms, cooperatives), social bodies (churches, pagoda, clubs, civil society …) and educational bodies (school, university, research center …) (North, 1990, 1995, 2003).
The institutional change is determined by the interaction between institution and organization. Two main determinants shape institutional change. First is the opportunity provided by the incentive structure of the institutions. Second is the feedback process that humans perceive and react to the changes in the opportunity set. Organizations are created in line with the institutional framework and will act to get the opportunity set from the incentive structure of the institutional framework. The chance to gain the profitability depends on the mental model in which entrepreneur of organization process the information. The cognitive capacity of entrepreneur creates a kind of communication among member of the organization so that every member possesses the same understanding-a shared mental model. This is known as organization learning. Therefore, organizations will invest on seeking means that permit them to be able to capture more opportunities i.e. knowledge11. When the organization evolves in taking advantage of the opportunities set, they will become more and more specialized in knowledge, more efficient and more productive, more competitive and gradually change the institutional framework (North, 1990, 1995, 2003).

Institutional change as process of problem solving

In line with North„s ideas concerning individual perception, motivation, knowledge and learning process, Mantzavinos (2001) elaborates the theory of shared mental model as a simple communication model and, thereby, explains institutional change as a process of collective problem solving which individuals face. The main argument for this theory is that institutional change is the outcome of changing agents‟ perceptions if their interests are better served under the new institutional arrangements. The change will go through the evolutionary process of learning (growth and transmit knowledge) i.e. trial and error by either collective or individual. Once, everyone possesses the same cognitive structure (shared mental model), they, then, initiate the change deliberately through collective action or spontaneously through invisible hand.
When individuals meet a problem, they try to find ready-made solutions from the environment they are living in. If new problems occur, individuals communicate. The effect of communication (called insertion rule) permits introducing solutions to the problem into the cognitive system of individual from the cognitive system of other individuals. Finally, both sender and receiver possess the same cognitive rule(s) and finally arise the share rule(s) between individuals called a “shared mental model”(Denzau & North, 1994; Mantzavinos, 2001, pp. 68-69). Base on this problem-solving model, the institutions are, then, either changed deliberately or spontaneously. Deliberate change happens when collectives encounter the same problem and make a conscious choice to solve it. Spontaneous change happens when individuals try out an innovative12 solution. If a given new solution solves the problem, other individuals tend to react, to imitate and to adopt the new solution. The process, with aid of invisible hand, constitutes the accumulative process through which new behavior or pattern of action becomes more wildly adopted by those who expect to have better condition.
In this study I apply the problem-solving model (motivation and knowledge as learning process) deriving from the theory of institutional change to understand conditions for integration young into smallholding agriculture. Based on this model, individual and family make choices based on the problems they face in their livelihood, knowledge of solutions they have learnt from member of their social group, and what they perceive to be the best solution conditioned by their resource constraints.

Family farm: as institution or organization

It is important to highlight meaning of family farm13 or farm household. The term „family‟ implies a range of sociological factors, such as interpersonal relationships, whereas „household‟ implies notions of functional economic activity (Tipper, 2010).
Families are households and include kin, which refers to a blood-relationship between individuals. Once notions of kinship are attached to family, it implies collective responsibility, collective action rules, norms and decision making within family members (Tipper, 2010). In this sense family may be considered as an „institution or informal institution‟(Chia, Dugué, & Sakho-Jimbira, 2006; Mantzavinos, 2001).“Family” can be considered as „organization‟ in the sense that it comprises governance structures for coordination of economic activities to achieve common objectives, i.e. sustaining livelihood (Requier-Desjardins, 1994). It is a unit of production involving both production and consumption. One of its important roles is as provider of insurance against economic adverse events (Pollak, 1985). In this case family may incline to the notion of household suggested by Tipper (2010) and organizational theory suggested by Williamson (Williamson, 1985).

Existing theories explaining the change of family farming

Lewis as early as in 1954 stated that all countries at some stage have to experience the movement of a labor force from the agricultural sector to non-agricultural sectors especially in societies with a fairly low level of economic development and rapid population growth. This is because agricultural activities are subject to diminishing returns. When there is surplus labor adding to the same plot of land, then labor productivity will decline up to the point where it is equal to or below the subsistence level. Commercial farmers must reduce the number of workers or reduce the wage rate. Family farm households must share the earning from agriculture to more member of household working on the farm and the dependent. When this share is below the household subsistent, farm household„s member will seek alternatives which could result in higher earning such as out-migration. More often, this migration has implied geographical movement of workers from rural to urban areas. The growth of urban unemployment would drive this labor working in petty services which has usually low productivity (Thirlwall, 2006).
In line with Lewis regarding to population growth, Dynson, (2010) argues that population growth is the main factor for societal change. Considering mortality and fertility as natural phenomena, demographical transition theory explains the path of transition as the change of society from the high birth and death rate to lower birth and death rate and, thereby, resulting population growth, people movement from rural to urban (urbanization) and change from “young age structure” to “old age structure” society (Dyson, 2010). Theory stated that traditional society will begin with declining in mortality which leads to rapid population growth: urbanization, migration, gender differentiation i.e. changes in women‟s roles, child bearing, family structure; these pose the stresses and strains on the society. As a consequence, people reduce number of children implying the decline of fertility. The society will gradually move to the structure of population aging14 (Dyson, 2010, pp. 216-225). However, even though each country has to go through the process of transition, it does not mean that each country would achieve the same outcome of the transition. The concept of demographical transition shares similar perspective with institutional economics. On the pathway of institutional change, the outcome would vary even though the same policy and standard institution was adopted. To understand the current challenge of the world, North (2003) suggests taking into account-population growth and institutional structure. Hence, land and labor of family are important aspects for addressing youth issue in family farming.
General social and economic theories of migration are always popular when issues involve people‟s decisions to migrate out of the farm. The theories emphasize numerous factors influent decision of agent of the family farm. General social theory of migration suggested that those factors are (1) original factors (push and pull forces), (2) destination factors, (3) intervening obstacles (physical and sociocultural distance) and (4) personal factors (perception in which individual learn from their environment) (Rhoda, 1983). The economic migration theory focus on (5) the expected “profitability of the employment” at the destination; that is, a personal cost-benefit analysis taking place in the prospective migrant‟s mind and extended to income and intersectional linkage model (Rhoda, 1983; Todaro, 1969).
Sustainable livelihood theory suggests that migration has now become a central feature of the livelihood of the majority of households in low income countries (Ellis & Freeman, 2005). Illustration 1 shows the linkage between migration and the livelihood framework15 as a way of moving out of poverty. The immediate connection migration to the human and financial capital in livelihood framework could help family farming to accumulate their wealth. Migration involves mobility of labor together with a person‟s experience, skills, educational level and health status. This human capital will play multiple roles in both reducing vulnerability and enabling asset accumulation of the household. Earnings obtained from migrating and the remittances sent back by migrants to their resident families are to maintain or raise the level of other assets such as saving, land, equipment, livestock, education of children and so on. This could contribute to the increase of household asset and reduction of the rural poverty (Ellis & Freeman, 2005).

READ  Effects of Dexamethasone on the Early- and Late-Activatable Pro-Inflammatory Functions of Human Neutrophils 

Table of contents :

1.1 Problem of the study
1.2 Farmer exclusion and job creation
1.3 Smallholder farming: structural constraints
1.4 Cambodia: demographic, employment and agrarian-nexus
1.5 Research questions
1.6 Youth definition applied in the study
1.7 Structure of dissertation
PART I. Theoretical background
2.1 Institutional Economics: Theory of Institutional Change
2.1.1 Concept of Institution
2.1.2 Institutional Change theory
2.2 Institutional change as process of problem solving
2.3 Family farm: as institution or organization
PART II. Theoretical framework
2.4 Existing theories explaining the change of family farming
2.5 Framework for successful and sustainable youth integration in farming
2.6 Framework for understanding the issue of integration youth in smallholding farming in this PhD study
PART III. Methodology
2.7 Research Design
2.7.1 The study area for the first survey Site selection in Otdar Meanchey Why three districts? Site selection in Takeo province: why two districts? Tram Kak commune Prey Kabas commune Social economic survey sample Focus group discussion with youth
2.7.2 The case study on Young Agricultural Entrepreneur Project (YAE)
2.8 Economic calculation and data analysis
2.9 Some Ethical Considerations
2.9.1 Youth perception on farming
2.9.2 Economics data from YAE case study
2.9.3 Year of getting marriage
2.9.4 Typology of farm hosueholds
2.10 Analytical Framework
3.1 Historical setting of Otdar Meanchey and Takeo province
3.2 Socioeconomic diagnostics of rural households
3.2.1 Demographics
3.2.2 Education Youth education Children education (age below 14) Household head‟s education Youths currently studying
3.2.3 Migration and youth
3.2.4 Consumption and household expenditure
3.2.5 Income sources
3.2.6 Food security
3.2.7 Access to credit
3.2.8 Settlement in Otdar Meanchey and Takeo
3.2.9 Concluding remark
3.3 Non-farm activities
3.3.1 A short history of non-farm activities in Cambodia
3.3.2 The nature of non-farm activities in the three study areas Five main categories of non-farm activities Agricultural wage labour Self-business Salaried employment Labor-based work Migration Income-based category of non-farm activities
3.3.3 Migration and non-farm farm income Education of migrant Migration as a temporal activity Non-farm and migration income per person Reason for migration and the use of remittance
3.3.4 View on non-farm activities
3.3.5 Concluding remarks
3.4 Description of agricultural activities
3.4.1 Biophysical environment in Otdar Meanchey and Takeo province
3.4.2 Rain-fed rice farming in Otdar Meanchey province Rice cultivation Annual crops Vegetables Regrouping annual crops and vegetables in Otdar Meanchey Animal production Common resource (CR) Fruit Tree Economic comparison of agricultural activities in Otdar Meanchey
3.4.3 Diversified rice farming system in Tram Kak Rice cultivation Annual crops Vegetables Regrouping Annual Crops and Vegetables in Tram Kak Animal production Common Resource in Tram Kak Fruit Trees in Tram Kak Economic comparison of agricultural activities in Tram Kak
3.4.4 Prey Kabas irrigated rice farming system Intensified rice cropping in Prey Kabas 2R and 3R rice cropping DR: water receding rice HR: Late cycle rice or late season rice Factors affecting the choice of 2R, 3R and HR Annual crops in Prey Kabas Vegetables in Prey Kabas Regrouping Annual Crops and Vegetables Animal production Common Resources in Prey Kabas (CR) Fruit Trees in Prey Kabas Economic comparison of agricultural activities in Prey Kabas
3.4.5 Concluding remarks
3.5 Land Value Index
3.6 Minimum Surface for Sustainable Integration in Family Farming (MSI)
3.6.1 Calculating poverty line/minimum need per person per day or per year in USD
3.6.2 Defining the Minimum Surface for Integration in Farming
3.6.3 Land situation for possible youth integration
3.7 Diversity of household: A typology of farm households
3.7.1 Principle component analysis and cluster analysis
3.7.2 Farm type in Zone Tram Kak Tram Kak PCA result and cluster analyses Description of farm the typology in Tram Kak Economic performance and livelihood strategy of each farm type in Tram Kak Economic sustainability of farm type in Tram Kak Farm capacity in comparison to poverty line in Tram Kak
3.7.3 Farm type in Prey Kabas Prey Kabas PCA result and cluster analyses Description of farm the typology in Prey Kabas Economic performance and livelihood strategy of farm type in Prey Kabas Economic sustainability of farm type in Prey Kabas Farm capacity in comparison to the poverty line in Prey Kabas
3.7.4 Farm type in Zone Otdar Meanchey Otdar Meanchey PCA result and cluster analyses Description of farm typology in Otdar Meanchey Economic performance and livelihood strategy of each farm type in Otdar Meanchey Economic sustainability of farm type in Otdar Meanchey Farm capacity in comparison to poverty line in Otdar Meanchey
3.7.5 Concluding remarks
3.8 Discussion
3.8.1 Socioeconomic conditions: farming have to accommodate more youth
3.8.2 Difficulty in looking for non-farm jobs link to low level of education
3.8.3 The degradation of farm economies and rural poverty: Farming as a safety net
3.8.4 Role of migration as a supplementary income to farming
3.9 Conclusion
4.1 Re-defining of youth in farming
4.1.1 Youth household
4.1.2 Adult household
4.2 Description of youth and adult household
4.2.1 Distribution of youth and adult household in each zone and type
4.2.2 Youth and adult household: land shared at marriage and current land
4.2.3 Economics characterization of youth and adult household Tram Kak youth and adult Prey Kabas youth and adult Otdar Meanchey youth and adult
4.3 Analysis youth integration capacity
4.3.1 Defining youth integration capacity
4.3.2 Youth integration capacity in each zone by farm type Capacity youth integration in Tram Kak Capacity youth integration in Prey Kabas Capacity youth integration in Otdar Meanchey
4.3.3 Economic capacity of youth integration in each farm type Zone Tram Kak Zone Prey Kabas Zone Otdar Meanchey
4.4 Household strategy for future youth
4.4.1 Investment in children education
4.4.2 Integration into farming under the MSI
4.4.3 Integration under the form of generation transfer
4.4.4 Migration to zone pioneer to seek for agricultural land
4.4.5 Farm trajectory Tram Kak, Prey Kabas and Otdar Meanchey
4.5 Discussion
4.5.1 Factor of enable and unable
4.5.2 Land amortization of land/sub division of land
4.5.3 Land is main challenge for future youth integration
4.5.4 Small holder farming is safety-net
4.5.5 Sustainable integration in farming need a complementary from non-farm
4.6 Conclusion
5.1 Introduction
5.2 Perception on farming
5.2.1 Theory explaining perception
5.2.2 Single youth perception and aspiration toward farming
5.2.3 Family perception on agriculture General opinion on agriculture Is it easy to start farm work? It is not easy to get land clear in zone pioneer like Otdar Meanchey Traditional knowledge is no longer applicable when rice is more intensified256 Experience determines the view on the easiness of starting up farm work Do you think agriculture is a good option for employment? Do you intend to hand over your farm to children?
5.3 Institutional dimension in support youth integration in farming
5.3.1 Role of existing CBOs in the survey
5.3.2 NGOs Intervention: Case study of CEDAC‟s YAE program Very few attempts to test youth integration program in farming CEDAC and young agricultural entrepreneur program To leave or to stay: Lesson learnt from CEDAC A life story: Motivation to start up farming as experience from trial migration Motivation to quit farming after farming trail: A livelihood economy tell 264 Those who stay combining active labor with family or non-farm activities267 Will they return back to farming? Youth‟s challenge in YAE: Lesson learnt Youth‟s complex social characteristic: Development intervention disappointment? There is no showcase that farming is high profitable No financial support setting up farming: Is CEDAC rational? Access to market
5.3.4 Existing policy in supporting youth integration in farming
5.4 Factors determine youth to settle in farming
5.4.1 Generation born and land access
5.4.2 Political integration at different time impacted on different integration in farming
5.4.3 Low level of education determines young people’s choice of farming
5.4.4 Gender and way of household subdivide land to children
5.4.5 Non-farm job is not easily accessible: Knowledge and skill demand but competition
5.4.5 Couple strategy
5.4.6 Investment in children education
5.5 Discussion and conclusion
6.1 Economic sustainability of farming need a complementary from non-farm activities .
6.2 Motivation, perception on farming: to leave or to stay
6.3 Future prospect of youth and Cambodian family farming


Related Posts