BAEcon Accounting and Finance

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The module aims at familiarizing the students with the key theoretical concepts of microdevelopment to understand how the micro-foundation of Development Economics can ultimately have an impact on the long run growth. In particular, 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 the agricultural organization, and provision of public goods and services, and on the 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 and credit 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.

(ECON20021 OR ECON30021 OR ECON20501 OR ECON30501) AND (ECON10071 OR ECON10071B OR ECON20071)

 

The aim of the course is to familiarize students with the key theoretical concepts of micro- development. In this course, students will learn about the market failures that characterize countries in the developing world and the solutions that have been adopted to deal with them. In line with the current trend in Development Economics, the perspective we have in this course is quite micro-oriented. We will look at property rights, agricultural organization and political economy of institutional change in developing countries. Students will explore both theoretical and empirical research to understand how missing or incomplete markets for land, insurance, as well as historical legacies and political structures give rise to poverty and underdevelopment.

On completion of the course, successful students will be able to demonstrate a clear understanding of key concepts, have a working knowledge of 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.

Provisional

Topic 1: Overview and Presentation of the Course. 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. First application to the sharecropping model.

Topic 2: 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. In the last part we link the sharecropping agreement to the property rights from a theoretical point of view to study the role of incentives.

Topic 3: Voting Theory and Politician Policy Choice

We will begin looking at models of voting and electoral competition, and how politicians choose policy platforms in response to anticipated voter behaviour. Moral hazard and Adverse Selection will again be important in understanding the choices politicians and voters make. Empirical research papers demonstrating the real world importance of the theory will be also be discussed.

Topic 4: The Role of Institutions

The institutions theory of development is a recent, compelling explanation of why countries are rich or poor. We will review the literature on this subject focusing on the role of social norms, democracy and colonial heritage.

Synchronous activities (such as Lectures or Review and Q&A sessions, and tutorials), and guided self-study

 

70% Exam: structured questions. Answer 2 out of 4 essay questions, and answer 1 out of 2 problems.

30% Mid-term test: The structure is: answer 1 out of 2 questions + 1 Problem.
 

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

• 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

The primary sources used for Topics 3 and 4 will be published journal articles. Useful background on the issues facing developing countries can be found in the textbook Development Economics by Debraj Ray. Current approaches to understanding household decision-making and finding solutions to alleviate poverty can be found in the book Poor Economics by Esther Duflo and Abhijit Banerjee.

A detailed reading list will be posted on the course website.