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1.Explain precisely how and why the moral hazard may arise in rural land contract in developing countries.

2.In order to know the effectiveness of a poverty alleviation program, an economist has run the following regression:

Yij +a1 Xij +a2 Tij+a3 Vj +eij

where Yij is the consumption of household i living in village j, Xij is the household characteristics (education, asset, land, age, gender, household size), Tij indicates if the household has received the program or not Vj is the information on village characteristics, eij is the error term - the unobserved characteristics of household i. The economist has found that a2 is negative and statistically significant, and has concluded that the program is making households poorer.

Do you agree with his conclusion? Why or why not?

Business Management, Management Studies

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