Wednesday, 19 August 2009

On the causes of slavery and serfdom

Over at the Oxonomics blog they are discussing the causes of slavery and serfdom. They write,
Daron Acemoglu and a co-author, Alexander Wolitzsky have a new paper on the economics of coerced labour. I've not worked through the model yet. From an economic historian's perspective, the paper looks important because it promises a resolution of the Brenner Problem.

The Brenner Problem concerns the decline of feudalism in western Europe. Historians had argued that the Malthusian crisis of the 14th century caused serfdom to collaspe because it increased the bargaining power of (the now scarce factor) labour. Brenner however pointed out that while that seems to describe western Europe, exactly the same forces caused the reimposition and strengthening of serfdom in Eastern Europe. More generally, labour scarcity suggests that landlords can ''capture' more rent by enslaving or enserfing workers, so it alone cannot explain why some economies have used free labour while others have used slave labour. Brenner argued that the coercive relationship between slave and master had to examined in detail. This is effectivley what the Acemoglu paper seeks to do (there is much more in the paper too).
Interesting stuff. The abstract of the paper reads,
The majority of labor transactions throughout much of history and a significant fraction of such transactions in many developing countries today are “coercive,” in the sense that force or the threat of force plays a central role in convincing workers to accept employment or its terms. We propose a tractable principal-agent model of coercion, based on the idea that coercive activities by employers, or “guns,” affect the participation constraint of workers. We show that coercion and effort are complements, so that coercion increases effort. Nevertheless, coercion is always “inefficient,” in the sense of reducing utilitarian social welfare. Better outside options for workers reduce coercion, because of the complementarity between coercion and effort: workers with better outside option exert lower effort in equilibrium and thus are coerced less. Greater demand for labor increases coercion because it increases equilibrium effort. We investigate the interaction between outside options, market prices, and other economic variables by embedding the (coercive) principal-agent relationship in a general equilibrium setup, and study when and how labor scarcity encourages coercion. We show that general equilibrium interactions working through prices lead to a positive relationship between labor scarcity and coercion along the lines of ideas suggested by Domar, while those working through outside options lead to a negative relationship similar to ideas advanced in neo-Malthusian historical analyses of the decline of feudalism. A third effect, which is present when investment in guns must be made before the realization of contracting opportunities, also leads to a negative relationship between labor scarcity and coercion. Our model also predicts that the slave trade makes slaves worse off, conditional on enslavement, and that coercion is more viable in industries that do not require relationship-specific investment by workers.

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