Bounded Rationality, Contract, And Collective Action: Study On Generation And Efficiency Of Farmer Cooperative In China

In this dissertation, I explore the question of whether exit a third road between market and government, which could improve the efficiency of agriculture and rural development, and farmers welfare? Despite not all economists remained consistent view of bounded rationality, it is also an important way to improve the framework for economic analysis. Individual decisions may evolve into an outcome of social rational based on bounded rationality, and the bounded rationality is the reason both of contract generating and incomplete. Contract theory and governance mechanisms are solution to market failure for bounded rationality, uncertainty and information problems. This paper discusses the third way is farmers'collective action based on bounded rationality and contract. This way could achieve Pareto efficiency through cooperation.Agriculture and rural development faces more serious uncertainty of nature environment and market than other economic activities. However, traditional theories and governance models to solute market failure and government failure are not entirely practiced in rural problems in China. So, I construct an analysis framework about rural cooperation base on instrumental theory consist of bounded rationality, contract, collective action and social capital. And then, this paper applied the theory to analyze issues including the rural economic cooperation, public resources in rural areas, rural public goods and rural politics. The conclusions and the views including:1. Agriculture and rural development with market failure and government failure reflects the prisoner's dilemma of conflict between individual rationality and collective rationality. I find, in the finitely repeated game, the prisoner's dilemma equilibrium can not be changed, and in infinitely repeated games, farmers will choice cooperation, and go out of the Prisoner's Dilemma in a certain probability, because of trust in the long-term production and life. It is considered belief consistency of participant in Bayesian equilibrium, trembling hand equilibrium and sequential equilibrium. Aad belief consistency determines the final equilibrium. Contract can strengthen the consistency of beliefs, especially in the case of bounded rationality. Contracts are still able to maintain the consistency of participants in faith. Contract plays a critical role in reaching farmers'cooperative in the games. As a common knowledge, contract is able to overcome bounded rationality, establish a basis of trust and promote the balanced refining, and then produce perfect Bayesian equilibrium. In incomplete contract, the contract requires improvment in the process of faith amendment to ensure the effectiveness of the incentive constraint. When farmers due to the limited rationality and lack of information can not be obtained posterior probability through the Bayes rule, the contract is crucial basis of forming consistency faith in the non-equilibrium path. During the game, when bounded rationality farmers can not reach cooperation in the previous period, the lead-farmers with reputation will advocate eliminating uncertainty caused bounded rationality, transaction costs and incomplete information in way of contract after observing the actions of other types.This way will ensure the farmers expected return, also is the intrinsic motivation for cooperation.2. There are differences in the efficiency of rural economic cooperation before and after China's rural reform, because of the incentive effects of the agency relationship within the organization. The behavior that farmers joined the economic cooperation organization based Market-mechanism has a significant positive effect of farmers' income. So it is a collective action with Pareto efficiency. Farmer cooperative behavior is also subject to the quality characteristics of individual farmers and village characteristics. Economic cooperation under the contract can effectively avoid the risk of decision-making with limited rationality and uncertainty of expected income. And it also could promote economic cooperation, achieve Pareto efficiency.3. Social capital includes trust, norms and social networks, with the capital value of being formed by them. Its value is essentially generated based on the efficiency of contract. In the Improved KMRW reputation game, individual rationality can reach collective rationality in finite repeated games:from conflict to cooperation. It is to say that in a cooperative manner based on social capital to improve the governance of public resources in rural will be efficiency.4. The way of rural public goods supply through contract-based game could make up for the inefficiency of government supply and the shortage of private supply. According to farmers'own demand of public goods, households with similar demand structure will cluster. Then the group with similar demand structure will reach contract of public goods provision and cost-sharing. The game equilibrium based contract is a Pareto improvement game equilibrium, compared to the government supply and private supply. If the government subsidies public goods supply, the results will strengthen the equilibrium of Pareto efficient.5. "Voting Paradox" is an inherent problem in public choice. Arrow's impossibility theorem confirmed the deviation of "procedural democracy"and "real democracy ". However, Sen give an optimistic answer for Arrow Impossibility Theorem through sorting personal preference and information base. In collective action of village self-government, democracy achieved level present the law of the first decreased and then increased with the economic development. Therefore, in order to improving the democratic process through the contract, we should expand the village's information base, stable order of preference of the villagers to prevent small group collusion.