1986 Articles

The New Development Economics

Stiglitz, Joseph E.

The theory of rural organization based on rational peasants in environments where information is imperfect and costly provides a simple explanation for a wide variety of phenomena in LDCs. It provides insights into both why sharecropping is so widespread and why it takes on the particular forms that it does; it provides an explanation of the interlinkage of credit and land markets, and of cost sharing. The paper argues that this theory provides a better explanation of these phenomena than do the competing theories. This theory can be viewed as an important application of a more general paradigm, the "Imperfect Information Paradigm," which has been useful in explaining economic phenomena under a wide variety of settings: under competition, oligopoly, and monopoly; in labor markets, capital markets, in insurance markets, and product markets; and in developed and less developed countries.