Such an institution implied low costs of operations in view of a centralization of information, the incentive mechanism embedded in the system and the limited information required from each individual (Only the information related to the person being or not blacklisted).

The functioning of the institution was financed by the fees paid by every agent when they queried the Law merchant about a prospective trader’s reputation.

The incentive to pay this fee and thereby acquire the information about a trader’s good reputation was the following one: unless the Law Merchant reported than a party had no "unpaid judgements", the merchant would had no right to appeal the judge as an adjudicator of disputes. This would imply not only loosing the ability to award damages in case of being cheated, but also not counting with a the mechanism to commit the other trader ex-ante to fulfill his contractual obligation ex-post (viz, the threat of making him loose his good reputation).

On the other hand, by establishing judgments large enough to encourage the injured party to appeal, the information about cheating reached the Law Merchant. That is, by having judgments that exceed the cost of an appeal, individuals had an incentive to appeal -thereby communicating the information required to ensure that cheating will go not be unpunished.

However, a condition was also required in the design of the incentives, for the cheated individuals to find it profitable to appeal: this was that judgments were not so large that the cheater would refuse to pay, for then the injured party would not expect to collect, and so would find it unprofitable to appeal.

Since members of a trading community could be kept informed about each other’s past behavior, transferable reputations for honesty served as an adequate bond to achieve the cooperative solution implied in the prisoner’s dilemma game.

This is because it was as if the 'game' was played over and over by the same buyer and seller. Therefore, players could condition their actions in each transaction on what has transpired in the past. It removed the incentives for opportunistic behavior by creating a cost offsetting the short term gains of opportunistic behavior. The cost was losing that bond, whose value was equal to the present value of individuals’ payoffs in future transactions.

The Monterrey conference on Financing for Development in March 2002 generated a consensus going beyond the UN, but its chances of immediate implementation are slim. It has not yet affected expectations to a degree sufficient to generate a development path capable of overcoming the conditions given by history in most developing or developed countries.

In Monterrey broad agreement was reached regarding the basic principles of a new global partnership matching the adoption of improved policies and good governance in developing countries with the provision of increased aid and trading opportunities by developed countries. The conference solidified support for the Millennium Development Goals and confirmed that they are not meant to impose blueprints. Each country is encouraged to select the goals most appropriate to its circumstances but since no binding commitment was secured the chances for implementation by developed and developing countries remain low.

Krugman (1991) illustrates the condition for an expectations-driven equilibirum to exist in a simple model where labour is the only factor of production and where the dynamics of labour mobility are determined by the shadow price placed on the "asset" of having a unit of labour in the increasing returns sector rather than in the constant returns sector. In that case, the wage in the increasing returns sector would have to rise in a deterministic path, but if it does not, it is because everyone expects the wage to rise in future at a rate just enough to compensate for its lower value at present.

According to Harris and Ionnides, there remains the possibility of asset prices anticipating population as expectations of future development are incorporated in asset prices for a particular city. The empirical verification that farmland values and housing values did not anticipate urban development reinforces the importance of institutional change, which is the crucial condition in the above statement.

This statement represents a case with a dynamic inconsistency in the sequence of actions taken by parties involved in a transaction.

According to the analytical framework developed to consider these cases, solemn promises to behave ‘responsible’ are not, by themselves, self-executing in a world in which economic agents (in this example the Government is the economic agent) are given to opportunism.

Cashew planting activities entail significant sunk costs (50% of the farmer’s cost associated with cashew production from existing trees) and investment returns, far from occurring instantaneously, take time to materialize (trees take more than 3-5 years to bear any fruit).

If the government of Mozambique –or private traders- promise a "high" level for the price of cashew nuts in the future, individuals will recognize potential hazards of opportunism and consequently think and act strategically. They will recognize that opportunistic governments have an incentive to pay them the minimum required for them to bring their crops to the market. That is, to pay them only their harvesting costs and cheat them out of the incurred sunk cost for the cashew production.

Hence, in the absence of a credible government commitment to pay prices of cashews as promised, private agents will anticipate low prices and thus they will not plant trees to avoid ending in a situation in which prices do not even cover the sunk costs associated to this activity.

Both, the income of the government and the welfare of the private agents suffer as a consequence: both of them could result lower relative to what would have been the case had there been a credible government commitment.

In such cases everyone stands to gain if the policymaker can forgo the discretion and credibly commit to effectively promote a profitable cashew plantation activities.

An additional point which could also be included as part of the answer is to consider that the organizational post-independence cashew sector excluded traditional authorities from discussions about this sector. This point could be considered along the framework developed in the readings of Acemoglu related to institutions that limit the powers of rulers and the range of distortionary policies that they can pursue. (It could be contrasted, for example with institutional developments in the cattle sector in Botswana).

In leading world economic growth from 1000 to 1820, Maddison identifies four epochs led by Venise, Portugal, Holland and England. From 1950 to 1973, he identifies a golden age due to to "neoliberal" international economic order, domestic policies and supply response. In other words, countries whose policies related to property rights and to integration of the economy into international trade do not qualify as appropriate do not converge.

The backcasts for year zero assume that during the first millenium, world population grew very little and per capita income stagnated.

The forecasts for year 2015 assume that the West's growth rate in 1990/2001 is maintained with a slight reduction for the US, making the impulse to the Rest similar to that prevailing in 1913-1950, and therefore lower than both in 1950-2001 and in 1870-1913.

Starring US (=1) we have by assumption y/y*= (A/A*)(h/h*)[(kh*/(k*h)]^a=(2/3)*(2/3)*(2/3)=8/27

The best presentation depends on the purpose of the exercise. Growth theory as summarised in the Cohen chapter of Redux is based on the assumption of perfect capital and labour mobility within countries, so that returns to factors equal their marginal productivity, which, in a Cobb-Douglas world are proportional to their average productivity:

Since human capital does not move, it is more interesting to focus on the ratio of physical to human capital k/h, which captures whether there is shortage of physical capital relative to the US (k/h)^a<1 or instead a surplus (k/h)^a>1. Together with total factor productivity A, this explains the difference in output per worker or better yet of output per human capital y/h=A(k/h)^a.

The difference between traded and non-traded goods is another essential dimension of growth theory and it can be proxied by the difference between manufacturing and services. If only manufacturing goods are traded then only their prices will be equalised whereas the price of non-traded goods will be determined endogenously. It turns out, however, that total factor productivity in non traded goods is probably the same in rich and poor countries, so that A_NT=A_NT* in that sector. Cohen then shows that in a two-sector economy the average output to human capital ratio y/h is proportional to total factor productivity in the traded goods sector A_T. In the table this is .85 for Spain and .71 for Senegal, even though individual country estimates should be taken with extra care relative to group averages such as the ones underlying the table in Redux.

Mariano Tommasi in his ABCDE Europe 2002 paper, Crisis, Political Institutions, and Policy Reform: It is not the Policy, it is the Polity, Stupid, critcises the widely held belief that crises lead to policy reforms independently of political institutions and applies his alternative approach of Transaction Cost Politics (which can be encapsulated by thinking of a political version of the Coase Theorem) to Argentina. When you include the (transaction) costs of enforcing the necessary intertemporal compensations, it becomes hard to implement reforms, even if they are very good.

The typical account of crisis and reform implicitly focuses on one-shot policy implementation when, in reality, policies are complex objects, with multiple stages. Taking reform to full fruition is a process involving multiple actors through multiple stages of the policy process, requiring specific responses from economic and social agents, and hence requiring several forms of cooperation and requiring positive beliefs on the durability of the policy.

The fact that there are no universally valid policy recipes is a point that was somewhat forgotten during the "reform epic" of the 80’s and 90’s. Part of the explanation has to do with the informational issues. The mappings between policies and outcomes are complex objects to apprehend, as illustrated by the debates among professional economists on the impact of trade liberalization on growth, or on poverty reduction. People (economic agents, politicians and policymakers) use mental shortcuts in order to organize the information of the world around them. That is the reason why the statement "it worked in New Zealand" seems to carry a lot more weight in selling an idea to a politician or to the public, than a complex multivariate analysis which specifies the dependence of optimal policy responses on a large number of difficult-to-assess variables. These tendencies seem to be more pronounced in the general public than in politicians, in politicians than in "policy experts," and in policy experts than in academics specialized in the subject matter.

The fact that reforms are instrumented under forced circumstances impinges some special characteristics to the type of reform that could emerge. These "negative special politics" do not seem the most adequate process in order to instrument deeper institutional reforms. The fact that a series of strategic tricks are used might have a negative impact on the quality of resulting reforms.

Crises are the worst conditions for the enactment of good collective choices. In hyperinflation crises, it becomes rational for everyone to act at highly disaggregated levels; with extremely short time horizons; and with the assumptions that everyone else will do the same. A gigantic, national level Prisoner’s Dilemma emerges.... The primary basic phenomenon is "generalised de-solidarisation". For players of this game, broad, long-run economic policies, negotiated and implemented with the participation of highly aggregated interest associations, are not important. This could be also applied to political behavior. That is to say that crises are perhaps the worst of times to generate the conditions for the deliberative construction of bargains and consensus that are necessary to sustain quality policies and solid institutional reforms. This capacity for constructing intertemporal co-operation is heavily affected by the institutional environment.

The question of which monetary institutional change could be induced after the 2001 collapse, a clear example of Transaction Cost Politics, can be answered by looking at crisis management, crisis resolution and policy evaluation in the "first" era of economic globalisation (1880-1914).

Lessons in view of the path to the Currency Board collapse and the way out it involve the need to have prudential banking regulations and supervision to avert moral hazard (implicit or explicit guarantees; various bailouts 1914: unexpected, 1920’s and 30’s the opposite). Argentina’s regulatory framework was not all that better during the post-Tequila period: Banco Nación, de facto lender of last resort in 1914-1935 was already then rediscounting bad loans, at very low, far from penalty, rates. The role of foreign banks in financial development/openness also suggests a revival one century later: global, diversified banking vs. lending in "gaucho" regime focused on short-term finance. The same can be said of events in 2001 leading all the way from good to bad equilibrium: reserve requirement reduction, exchange rate uncertainty (Euro/U$ basket), balance sheets deterioration (recession, deflation) coupled with continuous capital flight reinforced by consecutive negative shocks (Asia, Russia, Brazil, Turkey).