On Contracts and Motorcycle Taxi Markets in Benin and Togo

In the motorcycle-taxi market in most Sub-Saharan African countries, the relation between vehicle owner and driver is characterised by a principal-agent problem with the following features: the owner cannot observe the final output of the driver and therefore cannot condition a wage on it, and higher effort from the driver depreciates the motorcycle. These two feature simply that it is in the owner’s best interest that the driver exerts as little effort as possible while still leasing the motorcycle from him. The problem with low effort implementation is that the motorcycle will not generate enough revenue. I analyse the contractual arrangements between owners and the drivers in this market using survey data from four cities in Togo and Benin. Evidence suggests that the quest for trust through kinship between owner and driver may explain the prevalence of a contract that induces drivers to exert excessive effort, leading to adverse outcomes like traffic accidents.

That is Moussa Blimpo in a new cool paper in the Journal of African Economies.

One of the questions the paper addresses implicitly is whether trust necessarily leads to better development outcomes (you’ve seen those cross-country regressions with trust as an independent variable…)

……. in the presence of trust, people tend not to sign formal contracts that define residual rights and the actions to be taken in different expected situations. For example, if the owner and the driver are family members, they will be unlikely to draft a contract that caters to litigation, given that it is socially unacceptable to take a legal action against family.

What this means is that sub-optimal contracting and economic outcomes in developing countries may not be due to a general notion of lack of trust, but rather the lack of a specific kind of trust, let’s call it civic trust. This is the kind of trust that is infused with a healthy dose of skepticism and accompanied by explicit contracting under the shadow of credible enforcement by a third party, the state.

How to write about Africa in one picture

This is a story about Kenya building the first new railroad since the British built the old one more than a century ago. The new line goes through a National Park. A watchman was attacked by a cheetah. No one was mauled by lions. The attempts to link the current project to the Man Eaters of Tsavo trope is noted, but that happened a century ago when the lion population in the Protectorate was still quite big, and rhinos charged mail cars.Screen Shot 2015-02-26 at 11.33.38 PM

The rest of the story is here. Please skip through the Conrad-esque first paragraph.

Achebe (on Conrad’s racism) and Binyavanga (on how to write about Africa) should be required reading before some of these correspondents (and the social media interns) are inflicted on the world.