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30- Changing Policy As a Professor

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30. Changing Policy As a Professor

Lee Alston, Professor of Economics and Environmental Studies, University of Colorado, Boulder

 

The incentive structure for active academics is to publish in top academic journals. Many economists think that this may be inconsistent with academic work that has policy implications. However, academics are increasingly addressing policy issues of importance at the local, state, national, and international levels. I started my career as an economic historian, but always had a concern for the lessons that we can learn from history that are relevant for today.

 

My first foray into lessons for “today” came in the wake of the tightening of monetary policy by the Federal Reserve in the early 1980s. The natural result was a rise in real interest rates, which hurt debtors. One group particularly affected was farmers. As a result, several state legislatures proposed bills to prevent creditors from foreclosing on delinquent farm debtors. In Iowa, the governor issued a temporary executive order halting foreclosures. I had recalled that there was a precedent for moratoriums on farm foreclosures in Minnesota in the 1930s. Indeed, the legislation in Minnesota became a prominent Supreme Court decision, Home Building and Loan vs. Blaisell. In a 5-4 decision, the court upheld the moratorium in Minnesota. Following the decision of the Supreme Court, numerous other states passed moratoriums. In total, 25 states passed such legislation for varying lengths of time. I saw this as a natural experiment. Did creditors in states with moratoriums behave differently than in states without moratoriums? I tested whether creditors in states with moratoriums raised interest rates or rationed credit relative to creditors in states without moratoriums. I found that there was clear evidence that creditors rationed credit in states that had moratoriums and that this hurt prospective farmers. The policy lesson was clear: there is no free lunch in interfering with contracts. This research was published in the American Economic Review (1984), the top journal in economics. This demonstrated to me that policy advice does not have to come by sacrificing academic rigor. Given the present day rise in foreclosures, this article has been highly cited recently.

 

Over time I have found research in economic history and economic development to be complementary. My foray into economic development began in 1990 with a call from someone in the research division at the World Bank. He invited me to take on a research project on property rights on any natural resource anywhere in the world. He said that the World Bank lacked anyone with expertise in property rights and the emerging New Institutional Economics approach. It was an exciting opportunity, so I called Gary Libecap, a fellow economic historian who had worked on property rights, and asked if he wanted to collaborate. As a result, we flew to Washington, D.C., and consulted for several days with people across country groups. Deforestation and the role of titling emerged as our issue, and Brazil our country of focus because it had and still has the largest stock of tropical hardwoods in the world.

 

Brazil has a mix of private, state, and federal ownership of forests. Squatters can also settle on the public domain, and after a year of residency and work, they have the right to a title. We began our research to determine whether having a title to land compared to squatting affected deforestation. To our initial surprise, titling did not have a direct impact on deforestation. So we probed more deeply to determine the role of titles on land use for small landholders in the Amazon and found that having a secure title versus squatting on the land dramatically increased land values both directly because of a broadening of the market and indirectly by increasing permanent investment in the land. This work has been an input into the policy advice of the World Bank and has been cited in titling work around the globe. In the past year, I was contacted by an attorney in Uganda who is working to make land rights more secure and used our work on the Amazon as definitively showing the value of titles and secure land rights for more optimal land use.

 

My earlier work in the Amazon on titles led to an exploration as to why Brazil still has numerous land conflicts. Paradoxically, land reform policy in Brazil leads to more land conflicts. The federal government is now a relatively passive player in land reform. We recently have researched the impact of land conflict on land rentals in Brazil. We found that land conflict results in fewer land rentals and sharecrop units and thus blocks an avenue of socio-economic advancement for would-be renters. The lack of rentals and sharecropping also implies that the farming units are not optimal in size and thereby have a negative impact on productivity. The “missing market” has a further negative impact because it causes some landless to move to the frontier, deforest land, and engage in self-sufficient agriculture in or der to have a livelihood. Akin to our earlier work, this research has strong policy implications on how to better structure land reform in Brazil, a country with one of the world’s highest land inequality measures.

 

The defining feature of my research over the years is that I take on issues that I see as important and puzzling. Once you understand the issue and solve the puzzle, policy implications directly emerge. But do not start with trying to change policy. This is backward; understanding an issue comes first, and then proper policy prescriptions follow.

 

 

Lee Alston is professor of economics and environmental studies and is currently the director of the Program on Environment and Society at the University of Colorado. Alston is a research associate at the National Bureau of Economic Research. He was recently president of the International Society for the New Institutional Economics from 2006 to 2007. Alston’s honors include serving as a Rockefeller Fellow at the Bellagio Study and Conference Center and serving as visiting fellow/research scholar at Australian National University; Claremont-McKenna College; Princeton University; The Sorbonne, University of Paris; Stockholm School of Economics; and University of California, Davis. Alston has focused his research in two broad areas: 1) the role of contracts and institutions in shaping agricultural land use in the historical United States and contemporary Brazil; and 2) the important role of institutions in determining economic and political openness. Alston’s work has appeared in such journals as the American Economic Review; the Journal of Economic History; the Journal of Law, Economics, and Organization; Explorations in Economic History; and others. Alston is the coauthor of Paternalism and the American Welfare State: 1865-1965 and Titles, Conflict, and Land Use: Property Rights and Land Reform on the Brazilian Amazon Frontier. Alston is currently working on book manuscript titled The Road to an Open Economic and Political Society: Brazil 1985-2010.

 

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