New institutional economics questions.

Carefully read the following hypothetical story and answer the questions that follow.

In 1998 the government of Tanzania entered into a mining contract with a Multinational Mining Company under some duly specified terms and conditions. Some of the terms were as follows:

• The Multinational company to be allowed to airlift export bullions of gold from source i.e right from the mining sites
• The Multinational company to export mineral/soil concentrates abroad for gold extraction due to absence of a smelter in the country at the material time of the contract implementation.
• The Tanzanian government be paid a royalty of 3% (which was later increased to 4% after some negotiations) of the total value of gold produced.
• The Tanzania government to retain 15% share stake on the mines` ownership (which was later reduced to 5% and then 0% after just a few years of the contract`s implementation).
• The multinational company to be exempted from value added tax (VAT) on its fuel, machinery, vehicles and all other capital goods` procurements.
• The multinational company to employ Tanzanian workforce for all tasks that do not need specialized expertise which is not available in the country.
• That the signed contract was incomplete.

Lately, following long time public complaints and need to establish the authenticity of this contract a presidential committee was set out to investigate the matter. According to the probe committee`s findings that were made public recently, an industrial-scale plunder of the country`s mineral wealth by the multinational to the tune of over 100 trillion shillings in unpaid tax revenue over the 17 years was claimed to have occured. Moreover , the probe found out that the exported soil concentrate contained a number of other valuable minerals beside gold to include Silver, Copper, Sulphur etc which had not been part of calculations for royalty payments hence the huge reported losses above. The government thence banned further soil concentrate exportation up and until the multinational makes good of its account on the incurred losses and a smelter is constructed in the country to enable processing of sil/mineral concentrate right here. The multinational has agreed to negotiate (given the concern on the damage that the report has caused on her name globally) and offer to settle in full whatever unpaid dues if the negotiation will find any, and the government has agreed to the process.

Questions:

1. List down all outstanding institutional issues that stand out from this episode.
2. Use your knowledge of new institutional economics to explain and justify (or otherwise) the action of the Tanzanian Government in this deal/ contract.
3. Is the contract between the government and the multinational underpinned by Agency theory? Explain your answer clearly.
4. Do you think contractual arrangement was the best coordination form for the exchange between the government and the multinational in this case?. Give pertinent reasons for your answer and suggest alternative and more effective coordination form(s) for this exchage.
5. What do you understand by the term “Contract being incomplete” as applied in these terms?
6. If you are to be a member of the governement negotiating team, what will be your main points of empasis in your contribution?

The government of Tanzania has , effective 2016, embraced an industrialization policy focus in its short and medium term development plans.

1. Discuss the implication of this policy focus for institutions in the country i.e what are the most important institutional issues to be addressed if this policy is to be successful?
2. What would you suggest to be a better option in this regard for Tanzania- either adopt institutions of other countries which have made significant industrial development to avoid re-inventing the wheel, or , build own institutions from scratch>. Expalin and justify your choice accordingly.

1. Give a brief and clear description of market and no-market coordination forms for transactions
2. How are the coordination forms in 3(i) above related to transaction  characteristics?

Compare and contrast the following terms/ Concepts:

1. Experience good and credence good
2. Institutional environment and institutions of governance
3. Vertical integration and horizontal integration
4. Institutions and organizations

List down the special and peculiar contributions of New Institutional economics (NIE) paradigm to agricultural policy research.