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BSc International Business, Finance and Economics with Industrial/Professional Experience / Course details

Year of entry: 2020

Course unit details:
Development Economics IIIA

Unit code ECON30451
Credit rating 10
Unit level Level 3
Teaching period(s) Semester 1
Offered by Economics
Available as a free choice unit? Yes


The module aims at familiarizing the students with the key theoretical concepts of micro-development to understand how the micro-foundation of Development Economics can ultimately have an impact on the long run growth. In particular, the students will learn about how asymmetries in information can determine market failures that characterize countries in the developing world by undermining individual incentives and they will be exposed to the solutions that have been adopted to deal with them.

In line with the current trend in Development Economics, the perspective we adopt in this course is quite micro oriented. In particular we will focus on financial markets, agricultural organization, industrial organization, provision of public goods and services, and time permitting, political economy of institutional change in developing countries. Students will explore both theoretical and empirical models to understand how missing or incomplete markets for land, credit and insurance give rise to peculiar institutions that we observe in developing countries, particularly in rural areas.

Students will be exposed to a variety of theoretical and quantitative methods/tools that economists use and to how they can be appropriately applied and interpreted. These methods and tools are used in practical and academic settings to test economic theories and measure magnitudes that are relevant for economic policy analysis and other decisions. These methods are a key element of the professional training an economist; they will provide a foundation for subsequent study of applied and quantitative topics and are useful in many careers in economics.


Unit title Unit code Requirement type Description
Advanced Mathematics ECON10071 Pre-Requisite Compulsory
Microeconomics 3 ECON20021 Pre-Requisite Compulsory
Microeconomics 3 ECON30021 Pre-Requisite Compulsory
ECON10071 or ECON20021 or ECON30021

ECON10071 Adv Maths or ECON20021 Micro 3 or ECON30021 Micro 3 


The course aims to equip students with a number of core competencies including: (i) an awareness of key theoretical models dealing with asymmetries in information (ii) exposure to the most common empirical approaches to answer topical economic questions. On completion of the course, successful students will be able to demonstrate a clearer understanding of these key concepts, have a working knowledge of some theoretical and empirical models in the area, and understand their policy implications. They will be also able to:

  • understand the main techniques of models with asymmetries in information including

their strengths and limitations, at a level appropriate for an economics graduate.

  • understand how the main implications of theoretical frameworks can be then tested to measure economic magnitudes to have some knowledge of methods and results in selected areas of the applied economics literature.
  • have some practical experience of the application of theoretical models based on practical exercises
  • have acquired the necessary skills and knowledge to be able to critically appraise work in the area of applied economic theory.
  • have a good intuitive and theoretical grasp of the dangers, pitfalls and problems encountered in doing applied modelling.
  • have the necessary background material so that they are able to go on to study more advanced and technical material in the area of econometrics.
  • Assess critically aid-supported macroeconomic reform policies implemented in LDCs and their micro implications;
  • Express ideas coherently in structured essays.

Learning outcomes

On completion of the course, successful students will be able to demonstrate a clearer understanding of these key concepts, have a working knowledge of some key theoretical and empirical models in the area, and understand their policy implications. They will be also able to:

  • Explain the key issues in developing countries making reference to the existing theoretical and empirical literature;
  • Assess critically aid-supported macroeconomic reform policies implemented in LDCs and their micro implications;
  • Demonstrate their understanding of how asymmetries in information affect and condition LDCs in the international economy and of the factors that influence LDCs growth and development prospects.

Express ideas coherently in structured essays.


Topic 1: Overview and Presentation of the course in the first hour. Basic Principal-Agent Theory: The first topic represents the main framework upon which the course will rely on. This considers both Moral hazard and Adverse Selection setting in a static context mainly. Hints might be given also on repeated interactions.

Topic 2: Incentives for Public Service Delivery.

The successful delivery of public services ultimately relies on the effort of the agents on the field, e.g. teachers and health workers. Investment in infrastructure and supplies does not increase the supply of public services if delivery agents work poorly. Understanding which compensation schemes are better at motivating delivery agents is a key issue in Development Economics.

Topic 3: Financial Markets in Developing Countries: Theory & Evidence

Financial markets play a crucial role in the economic development of a country allowing those who have talents and skills but no money to undertake investments using the surplus savings of others. If this market is subject to frictions, then worthwhile projects may not be undertaken for lack of money, thereby depressing national income below its potential. We study first theoretical models of frictions in financial markets, and then empirical evidence on their importance and innovative policy interventions in response to financial market imperfections, with special emphasis on micro-finance

Topic 4: Land Market in Developing Countries and Property Rights

Agriculture occupies a central place in less developed economies. We study (a) features of agricultural organization in these economies, such as sharecropping tenancy agreement and interlinked contracts, as optimal second-best responses to missing markets and transactions costs (b) strategies for successful agrarian reform (c) empirical determinants of organizational and contractual form, and the effect of these on agricultural productivity.

Topic 5: Policy, State Capacity and the Role of Institutions

To explain why some countries are rich and others poor a new theory has been recently more and more support: the one based on the role of institutions. We will review the main journal articles on this subject focusing in particular on the role of social norms, democracy and colonial heritage.

Teaching and learning methods

Lectures and exercise classes.


Employability skills

Analytical skills
Analyse and interpret information to assess its context and validity. Support arguments with relevant evidence.
Relate economic models to real world events. Using library, electronic and online resources.

Assessment methods

70%      Exam

30%      Mid-term test

Feedback methods

  • Problem sets.
  • Class feedback.
  • Office hours.
  • Revision sessions.
  • Discussion boards.

Recommended reading

Chenery, H. and Srinivasan, T.N. (2007) Handbook of Development Economics, Vol. 4, Elsevier. Chapters 55, 60, 61.

Rodrik, D. and Rosenzweig, M. (2010) Handbook of Development Economics, Vol. 5, Elsevier. Chapter 73.

Laffont, J.J. and Martimort, D. (2002) The Theory of Incentives: The Principal-Agent Model

Study hours

Independent study hours
Independent study 0

Teaching staff

Staff member Role
Alessia Isopi Unit coordinator

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