Abstract
Following the analysis of legal mechanisms in IL to enforce the rights to food and property, and showing how IL fails to protect the rights of locals, this chapter will follow a social science approach to LSLIs. In order to do so, we will consider the effects of LSLIs as a result of opportunistic behaviour producing detrimental effects for third parties. We will apply NIE to analyse what gives rise to opportunism and how it can be tackled. After this brief overview we will introduce NIE and the concept of opportunism. We will suggest that opportunism has two sources, namely prohibitively high agency costs and incomplete contracts.
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Notes
- 1.
- 2.
Some examples are: Calabresi (2016), Posner (1973), Trachtman (2008), Posner and Sykes, p. 72134; van Aaken (2005, 2006), van Aaken (2009a), p. 483; van Aaken (2010). Susan Frank has also collected some data making some empirics analysis of IIL. In the area of trade law the some contributions have also been written: Guzman (2008), Franck (2005), p. 1521; Schropp (2009), Cashore et al. (2004).
- 3.
See the explanation of Williamson about the progress of NIE as well as the fields it covers: Posner and Sykes, p. 72134. As well as Posner in: Posner (1973).
- 4.
See also: Williamson (2000), p. 595.
- 5.
For an approach see: Posner (1993a), p. 73.
- 6.
As stated by Posner (1993a) when comparing NIE and L&E, both movements are valuable and they overlap in many aspects making its application fruitful. Posner refers to Williamson to affirm that: ‘[…]law is one of the legs of the interdisciplinary tripod on which NIE rests the seems no to be referring to the economic analysis of law.’ For basics on NIE: Guzman (2008). For specific application of NIE in agricultural issues see: van Aaken, ‘Rational Choice Theory’ available at http://www.oxfordbibliographies.com/view/document/obo-9780199796953/obo-9780199796953-0051xml?rskey=qyeNms&result=21&q= [accessed on 26 November 2013].
- 7.
This was stated by R. C. O. Matthews In his presidential address to the Royal Economic Society. Quoted by: Menrad and Shirley (2005).
- 8.
The theoretical framework of principal-agent relationships was also used in the legal literature to explain and solve efficiency problems. Some of the classical contributions in which contractual structures are explained as well as the problems of moral hazard, adverse selection and opportunism are offered by: Kherallah and Kirsten (2002), p. 110; Williamson (2000), p. 595; Williamson (1979), p. 233. More specific and applied to the field of L&E see: Braverman and Stiglitz (1982), p. 695; Milgrom and Roberts (1992), Mahoney (1999), Shavell (2004), van Aaken (2014b), Hermalin et al. (2007), Schropp (2009).
- 9.
van Aaken (2009b), p. 507.
- 10.
- 11.
Ostrom (2005a).
- 12.
- 13.
Williamson (1989), p. 223.
- 14.
Williamson (2000), pp. 595, 597.
- 15.
As stated by Williamson, ‘this level is undertaken by historians and other social scientists’. Ibid.
- 16.
Ibid.
- 17.
North (1990), p. 3.
- 18.
For complete application of Political Theory see: Williamson (2000), pp. 595, 598.
- 19.
Mueller (2008).
- 20.
- 21.
Milgrom and Roberts (1992).
- 22.
As stated by North: ‘The costliness of information is the key to the costs of transiting, which consist of the costs of measuring the valuable attributes of what is being exchanged and the costs of protecting rights and policing and enforcing agreements. These measurements and enforcement costs are the source of social, political en economic institutions’. Williamson (2000), pp. 595, 599.
- 23.
Posner (1993b) offers a brief description of the differences between the ‘old’ school and the ‘new’ school. His distinction focuses on the rejection of the classical economic theory (the theory of Adam Smith) by old institutional economics. He also focuses on the economic formal aspects as seen by both schools and the NIE theory, as expounded for example by Paul Samuelson.
- 24.
North (1990), p. 26.
- 25.
- 26.
See Sect. 1.5 of this study.
- 27.
Voigt and Hazo (2007), p. 269.
- 28.
For a comprehensive illustration of the different types of distribution of asymmetrical information applied to principal-agent problems that can also be considered in other NIE approaches see: Furubotn and Richter (2008), p. 2.
- 29.
Volker (1995), pp. 821, 824.
- 30.
- 31.
Komoremos (2005), p. 49.
- 32.
- 33.
van Aaken (2013), p. 227.
- 34.
Mueller (2008), p. 1.
- 35.
Indirectly this statement can be perceived in the contribution by Schropp (2009). He graphically shows the limitations of CT, such limitations have the common characteristic resulting in the impossibility of model aspects related to the sources of the preferences. See: ibid.
- 36.
Schropp (2009).
- 37.
It is explained by Williamson (1985), p. 49 as follows: ‘although neoclassical man confronts self-interested others across markets, this presumes that bargains are struck on terms that reflect original position. But initial positions will be fully and candidly disclosed upon inquiry, state of the world declarations will be accurate, and execution is oath- or rule-bound in the manner described above. Accordingly, whereas parties realise all advantages that their wealth, resources, patents, know-how, and so forth lawfully entitle them, those are all evident from the outset. Inasmuch as there are no surprises thereafter, a condition of simple self-interest seeking may be said to obtain. Issues of economic organisation thus turn on technological features (e.g. scale economies), there being no problematic behaviour attributable to rule deviance among human actors’.
- 38.
Williamson uses the definition of obedience introduced by Georgescu-Roegen in which a collective follows the instructions imposed by functionaries who establish macro goals. The economic problem is reduced to a problem of ‘technical manipulation. See: Williamson (1985), p. 47.
- 39.
By way of example see: ibid; Georgescu-Rogen quoted at 49 ibid.
- 40.
Wathne and Heide (2000), p. 36.
- 41.
In the context of this research the two terms are used synonymously.
- 42.
Davis et al. (1997), p. 20.
- 43.
Williamson (1985), p. 49.
- 44.
Transaction costs are the object of study of transaction economics. This discipline is a part of the NIE research tradition. Arrow understands transaction costs as the costs of running the economic system. They are different from production costs, which is the cost category which neoclassical analysis researches.
- 45.
Transaction economics understands contracts not only in a narrow legal way. The idea of the social contract is also part of the understanding of contract.
- 46.
Williamson (1985), p. 64.
- 47.
Williamson (1993), p. 97.
- 48.
We concentrate however only on cases in which the human rights to food and property are infringed.
- 49.
For a broad explanation of the models including both moral hazard and adverse selection see: Williamson (1993), pp. 97, 98.
- 50.
A detailed approach, infra at: Sect. 4.5.
- 51.
Williamson (1993), pp. 97, 98 ff.
- 52.
Williamson (1985), p. 49.
- 53.
See supra Sect. 2.3.
- 54.
- 55.
- 56.
Ross (1973), p. 134.
- 57.
Here we refer to the contributions of Williamson and Ostrom.
- 58.
Eisenhardt (1989), p. 57.
- 59.
Miller (2008), p. 351.
- 60.
Jensen and Meckling (1976), p. 305, 5.
- 61.
Ostrom and Hess, ‘Private and Common Property Rights’ http://ssrn.com/abstract=1304699 accessed 26 August 201 Schlanger and Ostrom (1992), p. 249; For an overview about the classical applications of PAT see: Bardhan (1987, 1989).
- 62.
One of the most famous examples of applying PAT in Corporate Law was written by: Volker (1995), pp. 821, 822.
- 63.
- 64.
Paul and Stephan (2002).
- 65.
Jensen and Meckling (1976), p. 305.
- 66.
Ross (1973), pp. 134, 5.
- 67.
This refers to the cases in which a more abstract notion of what constitutes a contract exists. In the political economic field, the relationships between voters and politicians is also seen as a principal-agent relationship in which a contract exist. See: Volker (1995), pp. 821, 823.
- 68.
Furubotn and Richter (2008), p. 476.
- 69.
Even though there are some economic approaches in the field of NIE that consider legal systems as variables, a well-developed application of theory of L&E on agrarian law as it exists in contract, civil, criminal, trade, international law, is still missing. The field is open for research.
- 70.
For an approach on agrarian institutions see: Volker (1995), pp. 821, 823 ff.
- 71.
See i.e. Bardhan (1989).
- 72.
For an overview of the application of PAT in political economy see: Harriss et al. (1997).
- 73.
- 74.
Binswanger and Rosenzweig (1986), p. 503.
- 75.
Ostrom (2005b).
- 76.
Ibid.
- 77.
Ibid.
- 78.
Ibid.
- 79.
Ibid.
- 80.
Ross (1973), pp. 134, 114.
- 81.
Jensen and Meckling (1976), pp. 305, 6.
- 82.
Ibid.
- 83.
Volker (1995), p. 821, 114.
- 84.
A very well elaborated contribution that explains the role of Chiefs by resolving local conflicts see: Jensen and Meckling (1976), p. 305, 7.
- 85.
Brobbey (2008).
- 86.
This is so because in the presence of high coordination costs, collective decision-making processes will also be more expensive than in small and homogenous groups.
- 87.
Ostrom and Hess, ‘Private and Common Property Rights’, 338 http://ssrn.com/abstract=1304699 accessed 26 August 2015.
- 88.
More detailed at Sect. 2.2.
- 89.
- 90.
See Sect. 2.2.1.2.
- 91.
Deininger et al. (2008), p. 1786.
- 92.
See Sect. 2.2.1.4 of this study.
- 93.
There are other systems such as that of Ethiopia where the institution of the Chief does not exist. In this particular case, since the land is completely owned by the state, the local authority takes decisions. Nevertheless given the fact that Chiefs do not exist in the theoretical model, the place of the Chief belongs to the state-authority.
- 94.
Schlanger and Ostrom (1992), p. 249.
- 95.
This statement is given by the fact that most of the African countries have ratified the 538; additionally domestic law in most African countries, protects the right to property of indigenous people at a constitutional level Last but not least, the African Commission on Human and People Rights ratified the guarantees concerning common property rights. See: ibid.
- 96.
In the case of Ghana for example where the Land Registry offices are catalysts for the Chiefs’ political power. Shelton (2002), p. 937.
- 97.
Due to the nature of the agricultural activity this has implicit high investment costs. Investment contracts are necessarily long-time contracts and firms must be big in order to be able to internalise risks and production costs.
- 98.
One recent study on land register: Goldstein and Udry (2008), p. 981.
- 99.
- 100.
This approach would follow the acceptance of the second best solution; as considered by individuals given the fact that they cannot obtain the best solution due to their cognitive limitations. For a seminal work: Kirsten et al. (2009).
- 101.
For this definition see Lipsey and Lancaster (1956).
- 102.
- 103.
Milgrom and Roberts (1992).
- 104.
Such principles vary depending on national idiosyncrasies and the political orientation of the government.
- 105.
- 106.
van Aaken (2008), p. 659. The term ‘Efficiency’ coming from welfare economics searches for the welfare of society. Van Aaken states that welfare might be derived from individual utilities and preferences (according to the classical school as well as Kaplow/Shavell) or might be constituted by individual capabilities and rights through an objective justification (following Sen). The important element of this approach is that it seeks to maximise human well-being as L&E does.
- 107.
See for example the role of entitlement of land on decreasing uncertainty in LDCs with a special emphasis on Sub-Saharan Africa. Ibid.
- 108.
- 109.
Relevant contributions in CT are: Paul and Stephan (2002), Dunoff and Trachtman (1999), p. 1; Bhandari and Sykes (1998), Posner (1973), Scott (2006), p. 279; Williamson (1979), p. 233; Shavell (1980), Mahoney (1999), Brousseau and Glachant (2002). CT applied to IIL: Shavell (2004), van Aaken (2009b), p. 507.
- 110.
See: Hrabrin Bachev, ‘Framework for Analysis of Agrarian Contracts’ Munich Personal RePEc Archive http://mpra.ub.uni-muenchen.de/20264/1/MPRA_paper_20264.pdf accessed 21 July 2015; See also van Aaken (2009b), p. 507 and Scott (2006), p. 279.
- 111.
Scott considers that the major conceptual advance proposed by CT is that it analyses the contract from an ex ante perspective which differs from how it is done in legal theory which focuses on the ex post perspective. The approach offered by CT makes it possible for parties to consider the inclusion of specific rules or standards in the contract that make contractual outcomes predictable in light of courts’ decisions. See: Scott and Stephan (2006), Scott (2006), pp. 279, 281.
- 112.
It is of increasing relevance for agricultural activities as a result of potential governmental interventions in agricultural markets. See: Scott and Stephan (2006), p. 62.
- 113.
See Sect. 1.5 of this study.
- 114.
- 115.
Cooter and Ulen (2012), p. 276 ff.
- 116.
Scott and Stephan (2006), p. 61.
- 117.
Dunoff and Trachtman (1999), pp. 1, 35.
- 118.
Cooter and Ulen (2012), p. 283.
- 119.
Calabresi and Melamed (1972), p. 1089.
- 120.
Ibid.
- 121.
Ibid.
- 122.
Ibid.
- 123.
Hermalin et al. (2007), p. 8.
- 124.
Ibid.
- 125.
For the application of this approach in trade-policies see: Scott and Stephan (2006), p. 64.
- 126.
- 127.
Grossman and Helpman (2001).
- 128.
Stigler (1971), p. 3.
- 129.
Seminal work in: Peltzman (1976), p. 211.
- 130.
Ibid.
- 131.
Stigler (1971), p. 5.
- 132.
Peltzman (1976), pp. 211, 214.
- 133.
Olson (1965).
- 134.
Shavell (1980), p. 467.
- 135.
Ibid.
- 136.
Furubotn and Richter (2008), p. 202.
- 137.
Shavell (1980), p. 468.
- 138.
Schropp (2009), p. 63.
- 139.
Schwartz (1992), pp. 271, 278.
- 140.
Dunoff and Trachtman (1999), pp. 1, 34.
- 141.
There are two relevant cases that are frequently quoted in the IIL literature in reference to long-term contracts. This is due to the considerations the tribunals made based on time periods provided for in contracts, which formed part of their decision. The first case is: Scott (2006), pp. 279, 280 in para. 95 the tribunal states that sovereignty rights may not be waived for such a long time (60 years). It held that: ‘with reference to every long-term contract, especially such as those that involve an important investment, there must necessarily be economic calculations, and the weighing up of rights and obligations, of chances and risks, constituting the contractual equilibrium’ … ‘it is in this fundamental equilibrium that the very essence of the contract consists.’ (para. 148). The second case is: The Government of the State of Kuwait v The American Independent Oil Company (1982) Award, 21 ILM 976 (Ad hoc Arbitral Tribunal) in which it was stated that in economic and legal terms 35 years cannot be considered a ‘relatively limited period’.
- 142.
The specialised literature refers to efficient breach contracts in such cases in which at least one of the parties deviate from contractual arrangements, since circumstances arise that make it less favourable for one of the parties to follow through with the pre-established contractual obligations. Amoco Finance Corporation v Islamic Republic of Iran (1988), pp. 1314–1405 (Iran - United States Claims Tribunal). Regarding the mechanisms to encourage efficient performance see: Schwartz and Sykes (2002), as well as Posner (1973), chapter IV.
- 143.
Shavell (1980), p. 466.
- 144.
van Aaken (2014a), p. 827, 5.
- 145.
Ibid.
- 146.
- 147.
Ware (1999).
- 148.
Dunoff and Trachtman (1999), pp. 1, 35.
- 149.
At the national level constitutional principles will be applied. At the international level in PIL, the Vienna Convention on the Law of the Treaties and the ILC’s Draft Articles on State Responsibility are the compendium of general norms that will apply.
- 150.
See for example the following paper in which the inclusion of experts commissions in IIAs is permitted: Loomes and Sugden (1982), p. 805.
- 151.
- 152.
- 153.
Sasse (2011).
- 154.
Guzman (1998), p. 639.
- 155.
Elkins et al. (2006), p. 811.
- 156.
Montt (2007), p. 150.
- 157.
For a similar analysis but in the issue of the promotion Sustainable Development through IIAs see: ibid.
- 158.
Ibid.
- 159.
Hallward-Driemeier (2003).
- 160.
Ibid.
- 161.
Neumayer and Spess (2005), p. 1567.
- 162.
Ibid.
- 163.
Poulsen (2010a).
- 164.
Even though south-south investment relationships have increased in volume in recent years, north-south relationships still represent over 50% of investment. Sasse (2011), p. 196 ff.
- 165.
Based on this approach, in the next chapter of this research we will take the discussion a step further by analysing to what extent emissary countries would contribute to the further development of the principle of extraterritoriality in HRL. We suggest that applying this principle would make it possible to create judicial incentives to initiate judicial procedures against enterprises that commit wrongful acts abroad that are considered as violations of human rights.
- 166.
See for example the research made by GRAIN. United Nations Conference on Trade and Development, World Investment Report 2013 (World Investment Report 2013, 2014) 36 ff. Additionally See: GRAIN, ‘Land Grabbing for Biofuels Must Stop: EU Biofuel Policies are Displacing Communities and Starving the Planet’ <http://www.grain.org/article/entries/4653-land-grabbing-for-biofuels-must-stop> accessed 10. 07. 2014, and an even more precise study has been run by the Land Matrix Stigler (1971), p. 6.
- 167.
See for example the case of Madagascar at Sect. 2.3.
- 168.
This can be the most relevant argument also for International Land Coalition (2011).
- 169.
See in this research Sect. 1.2.
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Montilla Fernández, L.T. (2017). Opportunism in LSLI Contracts: An Economic View. In: Large-Scale Land Investments in Least Developed Countries. International Law and Economics. Springer, Cham. https://doi.org/10.1007/978-3-319-65280-1_4
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