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.

Introducing the African School of Economics

Dr. Leonard Wantchekon of Princeton has set the ball rolling on what is a promising project.

The [African School of Economics] ASE will meet the urgent need for an academic institution capable of generating the necessary human capital in Africa. Although the region has seen significant improvements in primary and secondary education in the past few decades there is still a pressing need for advanced education centers.  Through our PhD programs, we hope to provide the missing African voice in many Africa-related academic debates. Furthermore, through our Master in Business Administration (MBA), Master in Public Administration (MPA), Executive MBA and MPA (EMBA and EMPA), Master in Mathematics, Economics and Statistics (MMES), and Master in Development Studies (MDS) programs, we will provide the technical capacity that will enable more Africans to be hired into top management positions in development agencies and multinational corporations operating on the continent. This will foster sustainable hiring practices that will retain talent and experience in Africa.

The school will open its doors in 2014.

Check out an introductory video by Dr. Wantchekon here.

The Catholic Church and AIDS: A Sorry Case of Denial

The Church’s continued ostrich approach to the catastrophe that is HIV/AIDS on the continent:

Pope Benedict XVI on Saturday signed off on an African roadmap for the Roman Catholic Church that calls for good governance and denounces abuses, while labelling AIDS a mainly ethical problem. Benedict signed the apostolic exhortation called “The Pledge for Africa” during a visit to the West African nation of Benin, his second trip to the continent as pontiff.

The document says AIDS requires a medical response, but is mainly an ethical problem.

Changes in behaviour are required to combat the disease, including sexual abstinence and rejection of promiscuity, it adds. “The problem of AIDS in particular clearly calls for a medical and a pharmaceutical response,” it says. “This is not enough however. The problem goes deeper. Above all, it is an ethical problem.”

More on this from the Daily Nation.

I have written against the Church’s policy on birth control here, here and here.

quick hits

Ugandan walk to work protests continue, despite the arrest of key opposition leaders.

Mutiny spreads in Burkina Faso. Compraore has been in power since 1987 after he ousted Thomas Sankara.

Benin’s Yayi Boni might have stole his way into a second term. I hope he is not planning on extending the presidential term limit in Benin.

interesting links

The Economist has a nice chart showing a cross-section of states and their performance as far as human development goes. Kudos to Benin for doing a good job of improving its human resources. And shame to the tail-enders on the chart on the right hand side.

I just watched this interesting video from the MIT World video archives. Jump to about the 1hr mark to hear his take on African states and their development prospects.

Lastly, Aid Watch has a post on childhood development. For those (Kenyans) out there who think that having the primary school exams determine a kids future is wrong, think again. Everything might be determined at the kindergarten level.