Turnover or Cash? Sharecropping in the Us South.

Guilherme de Oliveira (Columbia University)

Abstract : Between 1880 and 1940, US post offices alleviated the isolation of the Southern countryside by posting information about jobs in the growing industrial sector. Hence, post offices enhanced the outside options of employees in a time employers in the farming sector used sharecropping - a contract where employers paid employees with a share of the harvested crop - to avoid labor turnover costs. This paper finds that a new post office in a county decreased sharecropping, which is evidence that sharecropping mostly resulted from the lack of outside options for employees. This is an innovative result in the share contract literature, usually more concerned about sector-level reasons such as labor turnover than about outside options. Furthermore, new light is shed on the current use of sharecropping and other share contracts such as franchising. Since sharecropping and franchising are a form of entrepreneurship, this paper suggests a reason for the negative relation between GDP per capita and entrepreneurship.

Transaction Costs of Property Rights: Evidence from Timber Auctions

Colin Doran (George Mason University)
Thomas Stratmann (George Mason University)

Abstract : We identify an institution in three Western states, Oregon, Idaho, and Washington State that allows us to quantify several transaction costs associated with monitoring, negotiating, accessing, and deriving value from property rights. We analyze the winning bid price of an auction to harvest timber on state-owned land. We use the type of ownership bordering the harvest area—federal, private and state—as a measure of transaction costs, and test the effect of the transaction costs on the winning bid price. Consistent with our hypothesis, our paper shows that higher transactions costs associated with deriving value from property rights decrease bid prices. Moreover, the transactions costs vary by the type of owner adjacent to the harvest area, and are highest when the adjacent owner is the federal government. Additionally, we identify a change in a legal regime that allows us to analyze how transactions costs affect bid prices.

You Reap What You Know: Origins of Political Fragmentation

Thilo R. Huning (Humboldt-Universität zu Berlin)
Fabian Wahl (University of Hohenheim)

Abstract : We provide a model linking limits to the observability of soil quality to state rulers’ ability to tax agricultural output, which leads to a higher political fragmentation. We introduce a spatial measure to quantify state planners’ observability in an agricultural society. The model is applied to spatial variation in the 1378 Holy Roman Empire, the area with the highest political fragmentation in European history. We find that differences in the observability of agricultural output explain the size and capacity of states as well as the emergence and longevity of city states. Grid cells with higher observability of agricultural output intersect with a significantly lower number of territories within them. Our results highlight the role of agriculture and geography, for size, political, and economic organization of states. This sheds light on early, though persistent, determinants of industrial development within Germany, and also within Central Europe.

Innovation, Institutions and Industry Evolution: Historical Lessons for a Multi-directional World

Richard A. Hunt (Colorado School of Mines)
Lauren Ortiz-Hunt (Smith College)

Abstract : In this study, we develop and empirically test the theory that new industry entrants hold advantages over incumbents in the shift from unidirectional to multi-directional revenue streams. Using a Cobb-Douglas production function, modified to isolate returns to innovation, we examine data from three separate contexts: steamships on western U.S. rivers (1810-1860), satellite-based Internet services (1962–2010), and food waste recycling (1995-2015). The results reveal that while incumbents often attempt to stretch existing technologies to fit emerging circumstances, entrepreneurial innovators achieve greater success by approaching multi-directional value creation as a distinct challenge, one requiring new technologies, organizational forms and business models. While existing theories have primarily attributed incumbent inertia to a firm’s inability perceive and pursue radical innovations, our results also suggest that existing firms are simply unwilling to pursue innovations that are likely to erode the marginal profitability of their respective business models. Ironically, rather than protecting incumbents’ financial interests, we find that “marginal reasoning” can lead to diminished performance and even extinction. Our proposed framework and empirical findings have implications for a diverse array of multi-directional frontiers, including: social networking, commercial space travel, distance education, and medical treatments using nanoscale technologies.