University of Ottawa Department of Economics. ECO6171 Economic Development: Internal Aspects Fall 2009

Transcription

1 University of Ottawa Department of Economics ECO6171 Economic Development: Internal Aspects Fall 2009 Professor : Paul Makdissi Office : DMS Office hours : Monday and Tuesday 2:30 to 4:00 (or by appointment) Phone : (613) extension paul.makdissi@uottawa.ca Web : Description: This course addresses some internal aspects of economic development. In order to understand the objectives of economic development, we first start by a brief overview of the political philosophy literature (1 or 2 lectures). The remainder of the course will be organized in two parts. The first part covers the empirical measurement of well-being. The second part consists in microeconomic development models. Evidence in support of these models will be provided through empirical illustrations. Evaluation: Midterm exam 50% Final exam 50% The only acceptable excuses for missing an exam are illness/injury, severe illness/injury/death in the family or jury duty. Third-party evidence will be required. For example, medical certificates will have to be validated by the University of Ottawa Health Service on the 3rd Floor of 100 Marie-Curie. Please consult the note from the University of Ottawa Health Service on the next page Academic Fraud Academic fraud is neither accepted nor tolerated by the University. Anyone found guilty of academic fraud is liable to severe academic sanctions. Students can refer to for more information. 1

2 Note from the University of Ottawa Health Service Exam Deferral Procedures Too sick to write your exam? If you believe you are too sick to write an exam, you should consult a medical doctor BEFORE the exam. Seeing a doctor at the University of Ottawa Health Services is one option. If possible, it is preferable to schedule an appointment; however, there is always a doctor available to see patients without an appointment. We will do our best to ensure that students are seen promptly when they have an exam on the day they visit the clinic. Our physicians will be pleased to speak with you, examine you, and offer advice to help you with your medical problem. If you fit the criteria set by the University to defer an exam for medical reasons, a certificate will be issued to you to give to your faculty. Please note that we are willing to assess and treat ANY medical problem, no matter how serious or minor. However, only students with a SERIOUS illness will be granted a medical deferral for an exam. Examples of illnesses acceptable for exam deferral include high-grade fever or admission in a hospital at the time of the exam. Colds, diarrhea, headaches, menstrual cramps, insomnia and caffeine overdose may benefit from medical advice to ease symptoms, but they are NOT acceptable reasons to defer an exam. Feeling unwell the day or two prior to an exam, leaving you inadequate cramming time, is also NOT an acceptable reason to defer an exam. If you are feeling unwell and are not sure if your illness meets deferral criteria, please consult a doctor. You can expect treatment of your illness, but you should NOT expect a deferral certificate to automatically be granted. Of course students are welcome to consult their own doctors in the community. Please note that a physician at Health Services reviews all exam deferral certificates issued by doctors outside of University of Ottawa Health Services. The same strict criteria apply. It is possible that a doctor off campus may issue you an exam deferral, yet it may be refused when reviewed here. A physician, on or off campus, must see you PRIOR to the exam to certify that you are too sick to sit for the duration of the exam. We certify illness based on what we see when we examine you, and NOT on your description of your illness on a previous day. REQUEST FOR A DEFERRED MARK form available at DMS 3101 Misreading the exam schedule is not an excuse to miss the exam 2

3 Outline CHAPTER 1 DEVELOPMENT GOALS 1.1 Introduction 1.2 Procedural Justice 1.3 Utilitarianism and welfare economics 1.4 Rawls Theory of Justice 1.5 Post-Rawlsian political philosophy 1.6 Economic efficiency SECTION I: EMPIRICAL MEASUREMENT OF WELL-BEING CHAPTER 2 INTRODUCTION TO THE EMPIRICAL MEASUREMENT OF WELL-BEING 2.1 Survey issues 2.2 Income versus consumption 2.3 Price variability 2.4 Household heterogeneity 2.5 Continuous distributions 2.6 Discrete distributions 2.7 Poverty gaps 2.8 Cardinal versus ordinal comparisons CHAPTER 3 MEASURING INEQUALITY AND SOCIAL WELFARE 3.1 Lorenz curves 3.2 Gini indices 3.3 Social welfare and inequality 3.4 Statistical and descriptive indices of inequality 3.5 Decomposition of inequality 3.6 Empirical illustration: An historical view of inequality among World citizens 3

4 CHAPTER 4 MESURING POVERTY 4.1 Poverty Indices 4.2 Group-decomposable poverty indices 4.3 Poverty and inequality 4.4 Poverty curves 4.5 Decomposition of poverty 4.6 Empirical illustration: Poverty in Africa I CHAPTER 5 STOCHASTIC DOMINANCE, POVERTY AND WELFARE 5.1 Ordinal comparisons 5.2 Ethical judgements 5.3 Poverty dominance 5.4 Welfare dominance 5.5 Empirical illustration: Poverty in Africa II CHAPITRE 6 ANALYZING THE IMPACT OF PUBLIC POLICIES 6.1 Indirect taxes Introduction Notation and definition Consumer welfare and government budget Measurement poverty and social welfare Identification of socially-improving tax reforms Empirical illustration I : Indirect taxation in Mexico Empirical illustration II : Food subsidies in Egypt Pro-poor indirect tax reforms Empirical illustration III : Pro-poor tax reforms in Mexico 6.2 Public Utility Regulation Introduction Ramsey-Boiteux and Feldstein Pricing Impact of marginal price reforms Impact of marginal price cap reforms 6.3 Transfer programs Notation and definitions Transfer reforms Empirical illustration: Transfers programs in Mexico 4

5 SECTION II: TOPICS IN APPLIED MICROECONOMIC THEORY CHAPTER 7 HOUSEHOLD AND INTRA-HOUSEHOLD MODELS 7.1 Separable and non-separable household models Introduction Agricultural household models and separation property Multiple missing markets Empirical evidence 7.2 Intra-household models Unitary household models Efficient household models Empirical evidence CHAPTER 8 POPULATION 8.1 A basic model of fertility decisions 8.2 Externalities in fertility decisions 8.3 Child labour and multiple equilibria 8.4 Poverty traps CHAPTER 9 CONTRACT FARMING 9.1 Introduction 9.2 A theoretical model of contract farming Adverse selection and enforceable effort Adverse selection and moral hazard Adverse selection, moral hazard and imperfect supervision 9.3 Empirical evidence CHAPTER 10 CREDIT CONTRACTS 10.1 Introduction 10.2 Credit market failures 10.3 Rotating savings and credit associations and microfinance 10.4 Group lending 10.5 Empirical evidence 5

6 REFERENCES Chapter 1 : Arneson, R.J. (1989), Equality and Equal Opportunity for Welfare, Philosophical Studies, 56, Arnsperger, C. and P. Van Parijs (2003), Éthique économique et sociale, Éditions La Découverte. Cohen, G.A. (1989), On the Currency of Egalitarian Justice, Ethics, 99, Dworkin, R. (1981a), What is Equality? Part 1: Equality of Welfare, Philosophy and Public Affairs, 10, Dworkin, R. (1981b), What is Equality? Part 1: Equality of Resources, Philosophy and Public Affairs, 10, Hochman, H.M. and J.D. Rodgers (1969), Pareto Optimal redistribution, American Economic Review, 59, Kizner, I. (1979), Perception, Opportunity, and Profit. Studies in the Theory of Entrepreneurship, University of Chicago Press. Nozick, R. (1974), Anarchy, State and Utopia, Blackwell, Oxford. Rawls, J. (1971), A Theory of Justice, Harvard University Press, Cambridge MA. Rawls, J. (1993), Political Liberalism, Columbia University Press. Roemer, J.E. (1993), A Pragmatic Theory of Responsibility for the Egalitarian Planner, Philosophy and Public Affairs, 22, Sen, A.K. (1980), Equality of What?, in S. McMurrin (eds), The Tanner Lectures on Human Values, Vol. 1, Cambridge University Press, Cambridge. Steiner, H. (1994), An Essay on Right, Blackwell. Valentyne, P. (1998), Le libertarisme de gauche et la justice, Revue économique, 50, Van Parijs, P. (1995), Real Freedom for All. What (if anything) can justify capitalism?, Oxford University Press, Oxford. 6

7 Chapter 2 : Deaton, A. and S. Zaidi (2002), Guidelines for Constructing Consumption Aggregates for Welfare Analysis, Living Standards Measurement Study Working Paper No. 135, World Bank. Duclos, J.-Y. and A. Araar (2006), Poverty and Equity, Springer. Chapter 3 : Atkinson, A.B. (1970), On the Measurement of Inequality, Journal of Economic Theory, 2, Blackorby, C., D. Donaldson and M. Auersperg (1981), A New Procedure for the Measurement of Inequality within and Among Population Subgroups, Canadian Journal of Economics, 14, Bourguignon, F. (1979), Decomposable Income Inequality Measures, Econometrica, 47, Bourguignon, F. and C. Morrisson (2002), Inequality Among World Citizens: , American Economic Review, 92, Cowell, F.A. (1980), On the Structure of Additive Inequality Measures, Review of Economic Studies, 47, Duclos, J.-Y. and A. Araar (2006), Poverty and Equity, Springer. Gini, C. (1921), Measurement of Inequality of Incomes, Economic Journal, 31, Lorenz, M.O. (1905), Methods of Measuring the Concentration of Wealth, Publications of the American Statistical Association, 9, Sen, A. (1997), On Economic Inequality, Clarendon Press. Shorrocks, A.F. (1983), Ranking Income Distributions, Economica, 50, Shorrocks, A.F. (1984), Inequality Decomposition by Population Subgroups, Econometrica, 29, Theil, H. (1967), The Measurement of Income Inequality, in Economics and Information Theory, Chapter 4, North-Holland. 7

8 Chapter 4 : Duclos, J.-Y. and A. Araar (2006), Poverty and Equity, Springer. Foster, J., J. Greer and E. Thorbecke (1984), A Class of Decomposable Poverty Measures, Econometrica, 52, Jenkins, S. and P. Lambert (1997), Three I s of Poverty Curves, With an Analysis of UK Poverty Trends, Oxford Economic Papers, 49, Jenkins, S. and P. Lambert (1998a), Ranking Poverty Gaps Distributions: Further TIPs for Poverty Analysis, Research on Economic Inequality, 8, Jenkins, S. and P. Lambert (1998b), Three I s of Poverty Curves and Poverty Dominance: Tips for Poverty Analysis, Research on Economic Inequality, 8, Sahn, D.E. and D.C. Stifel (2000), Poverty Comparisons Over Time and Across Countries in Africa, World Development, 28, Ravallion, Martin (1994), Poverty Comparisons, Fundamentals of Pure and Applied Economics Volume 56, Harwood Academic Publishers. Sen, A. (1976) Poverty: An Ordinal Approach to Measurement, Econometrica, 44, Sen, A. (1997), On Economic Inequality, Clarendon Press. Chapter 5 : Atkinson, A.B. (1987), On the Measurement of Poverty, Econometrica, 55, Davidson, R. and J.Y. Duclos (2000), Statistical Inference for Stochastic Dominance and for the Measurement of Poverty and Inequality, Econometrica, 68, Duclos, J.-Y. and A. Araar (2006), Poverty and Equity, Springer. Duclos, J.-Y. and P. Makdissi (2004), Restricted et Unrestricted Dominance for Welfare, Inequality and Poverty Orderings, Journal of Public Economic Theory, 6, Duclos, J.-Y. and P. Makdissi (2007), Restricted Inequality and Relative Poverty, Research on Economic Inequality, 14,

9 Foster, J.E. and A.F. Shorrocks (1988a), Poverty Orderings and Welfare Dominance, Social Choice and Welfare, 5, Foster, J.E. and A.F. Shorrocks (1988b), Poverty Orderings, Econometrica, 56, Ravallion, M. 1994), Poverty Comparisons, Fundamentals of Pure and Applied Economics Volume 56, Harwood Academic Publishers. Zheng, B. (2001), Poverty Orderings: A Graphical Illustration, Social Choice and Welfare, 18, Chapter 6 : Audet, M., D. Boccanfuso and P. Makdissi (2007), Food Subsidies and Poverty in Egypt: Analysis of Program Reform using Stochastic Dominance, Journal of Development and Economic Policies, 9, Duclos, J.-Y., P. Makdissi and A. Araar (2009), Pro-Poor Tax Reforms, With an Application to Mexico, mimeo. Duclos, J.-Y., P. Makdissi and Q. Wodon (2005), Poverty-Reducing Tax Reforms with Heterogeneous Agents, Journal of Public Economic Theory, 7, Duclos, J.-Y., P. Makdissi and Q. Wodon (2005), Poverty-Dominant Transfer Programs: The Role of Targeting and Allocation Rules, Journal of Development Economics, 77, Duclos, J.-Y., P. Makdissi and Q. Wodon (2008), Socially-Improving Tax Reforms, International Economic Review, 49, Liberati, P. (2003), Poverty Reducing Reforms and Subgroups Consumption Dominance Curves, Review of Income and Wealth, 49, Lundin, D. (2001), Welfare-Improving Carbon Dioxide Tax Reform. Taking Externalities and Location into Account, International Tax and Public Finance, 8, Makdissi, P. and S. Mussard (2008), Analyzing the Impact of Indirect Tax Reforms on Rank Dependant Social Welfare Functions: A Positional Dominance Approach, Social Choice and Welfare, 30, Makdissi, P. and S. Mussard (2008), Decomposition of s-concentration Curves, Canadian Journal of Economics, 41,

10 Makdissi, P. and Q. Wodon (2002), Consumption Dominance Curves: Testing for the Impact of Indirect Tax Reforms on Poverty, Economics Letters, 75, Makdissi, P. and Q. Wodon (2007), Poverty-Reducing and Welfare-Improving Marginal Public Price and Price Cap Reforms, Journal of Public Economic Theory, 9, Mayshar, J. and S. Yitzhaki (1995), Dalton Improving Tax Reform, American Economic Review, 85, Santoro, A. (2007), Marginal Commodity Tax Reforms: A Survey, Journal of Economic Surveys, 21, Yitzhaki, S. and J.D. Lewis (1996), Guidelines on Searching for a Dalton- Improving Tax Reform: An Illustration with Data from Indonesia, World Bank Economic Review, 10, Yitzhaki, S. and J. Slemrod (1991), Welfare Dominance: An Application to Commodity Taxation, American Economic Review, 81, Yitzhaki, S. and W. Thirsk (1990), Welfare Dominance and the Design of Excise Taxation in the Côte d'ivoire, Journal of Development Economics, 33, Chapter 7 : Andrews, D.W.K. (1989), Power in Econometric Applications, Econometrica, 57, Bardhan, P. and C. Udry (1999), Development Microeconomics, Oxford University Press. Barrett, C.B. (1996), On Price Risk and the Inverse Farm Size-Productivity Relationship, Journal of Development Economics, 51, Becker, G.S. (1964), A Theory of Social Interactions, Journal of Political Economy, 82, Bellemare, M.F., and C.B. Barrett (2006), An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia, American Journal of Agricultural Economics, 88, Benjamin, D. (1992), Household Composition, Labor Markets, and Labor Demand: Testing for Separation in Agricultural Household Models, Econometrica, 60,

11 Bommier, A. and P. Dubois (2002), Rotten Parents and Child Labor, Journal of Political Economy, 112, Browning, M. and P.-A. Chiappori (1998), Efficient Intrahousehold Allocations: A General Characterization and Empirical Tests, Econometrica, 66, Carter, M. (1984),.Identifcation of the Inverse Relationship between Farm Size and Productivity: An Empirical Analysis of Peasant Agricultural Production, Oxford Economic Papers, 36, Collier, P. (1983), Malfunctioning of African Rural Sector Markets: Theory and a Kenyan Example, Oxford Bulletin of Economics and Statistics, 45, Folbre, N. (1984), Household Production in the Philippines: A Non-Neoclassical Approach, Economic Development and Cultural Change, 32, Jacoby, H.G. (1993), Shadow Wages and Peasant Family Labor Supply: An Econometric Application to the Peruvian Sierra, Review of Economic Studies, 60, Kevane, M. (1996), Agrarian Structure and Agricultural Practice: Typology and Application to Western Sudan, American Journal of Agricultural Economics, 78, pages Manser, M. and M. Brown (1980), Marriage and Household Decision Making: A Bargaining Analysis, International Economic Review, 21, McElroy, M.B. and M.J. Horney (1981), Nash-Bargained Household Decisions: Toward a Generalization of the Theory of Demand, International Economic Review, 22, Pitt, M. and M. Rosenzweig (1986), Agricultural Prices, Food Consumption, and the Health and Productivity of Indonesian Farmers, in I. Singh, L. Squire, and J. Strauss, eds., Agricultural Household Models: Extensions, Applications, and Policy, Johns Hopkins University Press. Quisumbing, A.R. and J.A. Maluccio (2003), Resources at Marriage and Intrahousehold Allocations: Evidence from Bangladesh, Ethiopia, Indonesia, and South Africa, Oxford Bulletin of Economics and Statistics, 65, Udry, C. (1996), Gender, Agricultural Production, and the Theory of the Household, Journal of Political Economy, 104, Udry, C. (1999), Efficiency and Market Structure: Testing for Profit Maximization in African Agriculture, Contributions to Economic Analysis and Policy, 242,

12 Chapter 8 : Bardhan, P. and C. Udry (1999), Development Microeconomics, Oxford University Press. Barro, R.J., and G.S. Becker (1989), Fertility choice in a model of economic growth, Econometrica, 57, Basu, K. and P.H. Van (1998), The Economics of Child Labor, American Economic Review, 88, Becker, G.S. (1960), An Economic Analysis of Fertility, in G.S. Becker (ed.), Demographic and Economic Change in Developed Countries, Princeton University Press. Becker, G.S. and H.G. Lewis (1973), Interaction Between Quantity and Quality of Children, Journal of Political Economy, 81, S279 S288. Cooper, R. and L. John (1988), Coordinating Coordination Failures in Keynesian Models, Quarterly Journal of Economics, 103, Hung, N.M and P. Makdissi (2004), Escaping the Poverty Trap in a Developing Rural Economy, Canadian Journal of Economics, 37, Chapter 9 : Bolton, P. and M. Dewatripont (2005), Contract Theory, MIT Press. Coase, R.H. (1937), The Nature of the Firm, Economica, 4, Fafchamps, M. (2004), Market Institutions in Sub-Saharan Africa, MIT Press. Grosh, B. (1994), Contract Farming in Africa: An Application of the New Institutional Economics, Journal of African Economies, 3, Guesnerie, R., P. Picard, and P. Rey (1988), Adverse Selection and Moral Hazard with Risk-Neutral Agents, European Economic Review, 33, Holmstrom, B. (1982), Moral Hazard in Teams, Bell Journal of Economics, 13,

13 Hueth, B. and E. Ligon (1999), Producer Price Risk and Quality Measurement, American Journal of Agricultural Economics, 81, Hueth, B. and E. Ligon (2002), Estimation of an Efficient Tomato Contract, European Review of Agricultural Economics, 29, Inoue, A. and T. Vukina (2007), Testing for the Principal s Monopsony Power in Agency Contracts, Empirical Economics, 31, Klein, B., R.G. Crawford and A.A. Alchian (1978), Vertical Integration, Appropriable Rents, and the Competitive Contracting Process, Journal of Law and Economics, 21, Knoeber, C.R. and W.N. Thurman (1994), Testing the Theory of Tournaments: An Empirical Analysis of Broiler Production, Journal of Labor Economics, 12, Knoeber, C.R. and W.N. Thurman (1995), Don t Count Your Chickens...: Risk and Risk Shifting in the Broiler Industry, American Journal of Agricultural Economics, 77, Krasa, S. and A.P. Villamil (2000), Optimal Contracts when Enforcement is a Decision Variable, Econometrica, 68, Kumbhakar, S.C. and C.A. Knox Lovell (2000), Stochastic Frontier Analysis, Cambridge University Press. Little, P.D. and M.J. Watts (1994), Living Under Contract: Contract Farming and Agrarian Transformation in Sub-Saharan Africa, University of Wisconsin Press. Minten, B., L. Randrianarison and J.F.M. Swinnen, Global Retail Chains and Poor Farmers: Evidence from Madagascar, forthcoming in World Development. Page, F.H. (1991), Optimal Contract Mechanisms for Principal-Agent Problems with Moral Hazard and Adverse Selection, Economic Theory, 1, Perry, M.K. (1989), Vertical Integration: Determinants and Effects, in R. Schmalensee and R.D. Willig (eds.), Handbook of Industrial Organization, Elsevier. Picard, P. (1987), On the Design of Incentive Schemes Under Moral Hazard and Adverse Selection, Journal of Public Economics, 33, Slade, M.E. (1996), Multitask Agency and Contract Choice: An Empirical Exploration, International Economic Review, 37,

14 Theilen, B. (2003), Simultaneous Moral Hazard and Adverse Selection with Risk- Averse Agents, Economics Letters, 79, Warning, M. and N. Key (2002), The Social Performance and Distributional Consequences of Contract Farming: An Equilibrium Analysis of the Arachide de bouche Program in Senegal, World Development, 30, Chapter 10 : Anderson, S. and J.-M. Baland (2002), The Economics of ROSCAs and Intrahousehold Resource Allocation, Quarterly Journal of Economics, 117, Armendariz de Aghion, B. and J. Morduch (2005), The Economics of Microfinance, MIT Press. Bell, C. (1988), Credit Markets and Interlinked Transactions, in H. Chenery and T.N. Srinivasan (eds.), Handbook of Development Economics, Volume 2, Elsevier. Besley, T., S. Coate and G. Loury (1993), The Economics of Rotating Savings and Credit Associations, American Economic Review, 83, Besley, T. and S. Coate (1995),.Group Lending, Repayment Incentives, and Social Collateral, Journal of Development Economics, 46, Chiappori, P.-A. and B. Salanie (2002), Testing Contract Theory: A Survey of Some Recent Work, Working Paper, Institut national de la statistique et des études économiques. Kochar, A. (1997), An Empirical Investigation of Rationing Constraints in Rural Credit Markets in India, Journal of Development Economics, 53, Morduch, J. (1999), The Microfinance Promise, Journal of Economic Literature, 37, Stiglitz, J.E. and A. Weiss (1981), Credit Rationing in Markets with Imperfect Information, American Economic Review, 71, Wilson, R.B. (1993), Nonlinear Pricing, Oxford University Press. 14

15 Wydick, B. (1999), Can Social Cohesion Be Harnessed to Repair Market Failures? Evidence from Group Lending in Guatemala, Economic Journal, 109, Yunus, M. (1999, 2003), Banker to the Poor: Micro-Lending and the Battle Against World Poverty, Public Affairs. 15