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Institutional Inertia: Persistent Inefficient Institutions in Spain

  • José-Antonio Espín-Sánchez (a1)

In 1966, after more than 700 years, the irrigation community in Mula (Spain) switched from auctions to quotas to allocate water from its river. This change happened in the absence of either political or technological change. Quotas were more efficient, but required that farmers own water property rights. I develop a model in which poor farmers cannot credibly commit to purchase water rights. I show that empirical evidence on savings and prices is consistent with this interpretation. A temporary increase in output prices in the 1950s and better financial institutions allowed farmers to accumulate savings and solve the commitment problem.

“There is nothing more difficult to arrange, more doubtful of success, and more dangerous to carry through, than to initiate a new order of things.”

Niccolò Machiavelli, The Prince

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I am indebted to my advisor, Joel Mokyr, for helpful discussions, guidance, and support. I am also grateful to the members of my dissertation committee, Joseph Ferrie, Regina Grafe, and Robert Porter, for advice and encouragement. Discussions with Javier Donna, Tim Guinnane, Alejandra Irigoin, Naomi Lamoreaux, and Yannay Spitzer, as well as participants at Northwestern University and Universidad Carlos III Economic History Workshops, the WEHC 2012, and the SITE 2012 have greatly benefited this work. I would also like to express my gratitude to Javier Almela, Diego Caballero, Fernanda Donna, and Antonio Espín for their help collecting the data used in this project, and to Kelly Goodman, for editorial advice. I acknowledge financial support from Center for the Study of Industrial Organization at Northwestern University, the Agencia Estatal de Meteorología, and Fundación Caja Madrid. All errors are my own.

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