TOWARD AN INSTITUTIONAL ANALYSIS OF FARM INCOME STABILIZATION

Abstract

The objective of the paper is to compare the major institutional mechanisms of farm income stabilization (market, government, civil society) in order to find out how the mutual substitution of the mechanisms can serve to overcome their limitations. The major identified limitations include: for the market mechanism - opportunism and poor insurability of systemic risks; for the government mechanism - opportunistic behavior of recipients of farm income stabilization services, agency problems in the implementation of public programs, high potential for bureaucratization and excessive complexity of insurance programs. The incentive problems of the civil society mechanism mainly do not include those that are characteristic for both markets and governments. However, this mechanism possesses problems specific to cooperative organizations. These problems have been shown to originate from high social capital-dependence of the civil society mechanism, which means that while these problems are able to significantly increase transaction costs of civil society mechanism, the actual size of these transaction costs depends on the availability of social capital in the respective communities. The economic context of transition to market has been shown to create additional constraints on market and government mechanisms and opportunities for the civil society mechanism. The optimal role of the government therefore is to invest in social capital in order to reduce the transaction costs of the civil society mechanism.