MICROECONOMIC PRINCIPLES

In the Indian state of West Bengal many farmers work as sharecroppers (bargadars in the
Bengali language), renting land from landowners in exchange for a share of the crop.
The traditional contractual arrangements throughout this state varied little from village to
village, with virtually all bargadars giving half their crop to the landowner at harvest time.
This had been the norm since at least the eighteenth century. However, because of the
extreme levels of deprivation among the bargadars many thought this was unfair. In 1973,
73% of the rural population lived in poverty, one of the highest poverty rates in India. In
1978, the newly elected Left Front government of West Bengal adopted new laws, called
Operation Barga.
The new laws stated that:
• Bargadars could keep up to three-quarters of their crop.
• Bargadars were protected from eviction by landowners, provided they paid them the
25% quota.
Both provisions of Operation Barga were advocated as a way of increasing overall output
and the incomes of the farmers. Indeed, Operation Barga was subsequently cited by the
World Bank as an example of good policy for economic development. One study suggested
that Operation Barga was responsible for around 28% of the subsequent growth in
agricultural productivity in the region. The empowerment of the bargadars also had positive
spillover effects as local governments became more responsive to the needs of poor farmers.
Q1 Use your knowledge of economic incentives to explain the possible reasons for the
success of Operation Barga in increasing overall output of the region and the incomes of the
farmers. (3 marks)
Q2 From a consequentialist perspective, was the introduction of Operation Barga ethically
justified? (6 marks)
Q3 Using a deontological ethical framework, construct an argument either in favour of
Operation Barga or against it. (6 marks)
Q4 Did the introduction of Operation Barga result in a Pareto improvement in allocations
between the farmers and landowners? Explain your answer. (3 marks)
MACQUARIE
BUSINESS SCHOOL
Department of Economics
Q5 What can Pareto efficiency tell us about the fairness and equality of allocations? When
discussing your answer be sure to reference the specific case of Operation Barga. (4 marks)
You are now asked to model the trade-off between free time and production for an
independent farmer named Mamata who owns the land on which she works.
If Mamata was able to work 24 hours a day she could produce 4 tonnes of rice (the principal
food crop cultivated in West Bengal) each day. You are told that Mamata’s utilitymaximising choice is to work for 8 hours and produce 3 tonnes of rice.
Q6 Use the model of decision-making under scarcity developed in week 3 to show Mamata’s
optimal choice of free time and rice production. On this diagram be sure to label and define
her feasible frontier, set of indifference curves and optimal choice. (5 marks)
Now you are informed that Mamata is no longer an independent farmer. Instead, she works
as a bargadar and rents the land on which she works from a landowner and keeps 75% of
the rice that she produces (as is the case after the adoption of Operation Barga).
Q7 Using your answer to Q6 as a starting point, show (on a separate model) Mamata’s new
optimal choice as a sharecropper. Again, be sure to label and define each of the relevant
points and lines on your diagram. List each of the assumptions you made when developing
your model. (8 marks)
Q8 Discuss how the models developed in Q6 and Q7 can be used by economists to evaluate
the fairness of economic outcomes? (5 marks)

Sample Solution

ACED ESSAYS