Economics 2520 Comparative Institutions Professor Daniel Berkowitz Fall

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1 Economics 2520 Comparative Institutions Professor Daniel Berkowitz Fall Professor Berkowitz s coordinates: Office WWPH 4711 Office hours: Wednesday 10-11; Thursday 9:30-10:30. Telephone: x dmberk@pitt.edu Website: Comparative Institutions Prerequisites: It is recommended that students complete the first year courses in the PhD program in Economics. Otherwise, consent of the instructor is required. Course Description: This course will expose students to contemporary research on the origins and implications of good institutions that enforce property rights and establish rule law. We start by surveying the cross-country work by La Porta et al (Journal of Political Economy 1997) and Acemoglu, Johnson and Robinson (American Economic Review, 2001). We use these papers to focus on several issues including 1) the role of natural experiments for identification, 2) theories of institutional persistence and change, 3) the measurement of institutions, 4) theories of how institutions matter for economic performance. Requirements: Students are expected to attend class regularly and to contribute to discussion. Students are also required to present two papers, take a midterm exam and prepare a final research proposal that is due on the last day of classes. The final course proposal should be seven to ten pages, double-spaced and typed. It should use some of the technical material that was discussed in this class (for example, measurement issues, natural experiments, the modeling or documentation of institutional persistence, etc). It must also contain references to data sources, and historical and political background material for a particular topic. Grade: Class participation = 10%; Paper presentations = 25%; Midterm exam = 25%; Final Paper/Proposal = 40%. Required Text: All readings will be placed on internet sites.

2 Economics 2520 Comparative Institutions Professor Daniel Berkowitz Fall Professor Berkowitz s coordinates: Office WWPH 4711 Office hours: Wednesday 10-11; Thursday 9:30-10:30. Telephone: x dmberk@pitt.edu Website: I. Institutions and Economic Performance Key Issues: Defining Institutions, Experiments and Initial Conditions as Sources of Exogenous Variation, Persistence of Institutions in Theory and Practice, Measurement of Institutions Using Subjective Data Versus Laws of the Books and Indirect Measures; Institutions Broadly Defined versus Particular Institutions, Do Institutions Cause Growth or Do You Need to Be Rich to Afford Good Institutions? IA. Political Economy Daron Acemoglu, Simon Johnson and James Robinson, The Colonial Origins of Comparative Development: An Empirical Investigation," 2001, American Economic Review, 91, iginsaer.pdf Daron Acemoglu, Simon Johnson and James Robinson, "Reversal of Fortune: Geography and Institutions in the Making of the Modern World Income Distribution," 2002, Quarterly Journal of Economics, 118, version.pdf Daron Acemoglu and James Robinson, Why Did the West Extend the Franchise? Growth, Inequality and Democracy in Historical Perspective, 2000, Quarterly Journal of Economics, CXV, Stanley E. Engerman and Keneth L. Sokoloff, Colonialism, Inequality, and Long-Run Paths of Development, January 2005, NBER Working paper

3 Stanley E. Engerman and Keneth L. Sokoloff, Institutional and Non-Institutional Explanations of Economic Differences, September 2003, NBER Working paper Daron Acemoglu, Simon Johnson, James Robinson and Yunyoung Thaicharoen, Institutional Causes, Macroeconomic Symptoms: Volatility, Crises and Growth," 2003, Journal of Monetary Economics, 50, shedversion.pdf IB. Natural Experiments and Identification Marcelo Moreira and Brian Poi, Implementing Tests with Correct Size in the Simultaneous Equations Model, January 2003, Stata Journal, 3 (1), This paper lays out a framework for understanding instrumental variables and appropriate test statistics. Daniel Berkowitz, Mehmet Caner and Ying Fang, Are Nearly Exogenous Instruments Reliable, SSRN Working Paper, July This paper focuses on exclusion restrictions in instrumental variables and proposes a solution. Timothy Besley and Anne Case, Unnatural Experiments? Estimating the Incidence of Endogenous Policies," Economic Journal, November 2000, 467, pp This paper highlights the role of identification using experiments in dynamic settings. tor.org/search/advancedresults%3fhp%3d25%26si%3d1%26all%3dunnatural%2bexper iments%26exact%3d%26one%3d%26none%3d%26sd%3d%26ed%3d%26jt%3d%26ic %3d %26ic%3d %26node.Economics%3d1%26node.Business%3d1& frame=noframe&currentresult= %2bdi015579%2b01p0020m%2b0%2c5755d 5&userID=888eaeb2@pitt.edu/01cce4401e2e0710d406afbe1&dpi=3&config=jstor IC. Legal Origins R. La Porta et al. "Law and Finance,"(with R. La Porta, F. Lopez-de-Silanes, and R. Vishny). Journal of Political Economy, December This paper draws on comparative law scholarship by Merryman and others and makes the case that common law versus civil law origins has a persistent impact on institutions and economic performance primarily through financial markets. R. La Porta et al. Legal Determinants of External Finance" Legal Determinants of External Finance, Journal of Finance, July,

4 Katharina Pistor, Martin Raiser and Stanislaw Gelfer, Law and Finance in Transition Economies, Economics of Transition, Vol. 8, pp , This paper argues that the measures of institutions based on laws on the books are inappropriate in post-socialist transition economies where enforcement of laws cannot be taken for granted. Daniel Berkowitz, Katharina Pistor and Jean-Francois Richard, Economic Development, Legality, and the Transplant Effect, European Economic Review, Vol. 47, No. 1, February This paper argues that the way that legal systems have been transplanted is perhaps more important than whether or not a common law or civil law system was transplanted. In Search of the Holy Grail: Policy Convergence, Experimentation, and Economic Performance, (with Sharun Mukand), American Economic Review, March This can be downloaded from JSTOR. Institutions Rule: The Primacy of Institutions over Geography and Integration in Economic Development (with A. Subramanian and F. Trebbi), Journal of Economic Growth, vol. 9, no.2, June This paper attempts to check for channels through which institutions influence economic performance. Simeon Djankov et al. Courts, Quarterly Journal of Economics, May, (Note: One of the points of this paper is that it is possible to develop non-subjective measures of institutions that do not rely on subjective measures and also do not rely on laws on the books. Djankov, S., La Porta, R., López de Silanes, F., and Shleifer, A. (2002) The Regulation of Entry, Quarterly Journal of Economics, 117: Daron Acemoglu and Simon Johnson, Unbundling Institutions, October 2005, Journal of Political Economy, v. 113, This paper attempts to breakdown institutions broadly defined into institutions that drive down the cost of contracting and institutions that protect property rights. Ed Glaeser et al., Do Institutions Cause Growth?" Journal of Economic Growth, September, This paper contains a very useful critique of subjective measures of institutions and it also an important overview of the debate about whether institutions drive economic performance or whether economic performance drives institutions.

5 Ross Levine, Law, Endowments and Property Rights, Journal of Economic Perspectives, 19(3), Summer, 2005, aw%20endowments%20property%20rights.pdf ID. Persistence Gerard Roland, Understanding Institutional Change: Fast-Moving and Slow-Moving Institutions, Studies in Comparative International Development, Daron Acemoglu and James A. Robinson, Persistence of Power, Elites and Institutions, SSRN Working Paper, February Roger Lagunoff, Dynamic Stability and Reform of Political Institutions, Department of Economics, Georgetown University, August Tim Besley, Torsten Persson and Daniel Sturm, Political Competition and Economic Performance: Theory and Evidence from the United States, LSE Working Paper, November Ted Miguel and Gerard Roland, The Long Run Impact of Bombing Vietnam, October 2005, University of California, Berkeley. Lakshmi Iyer, The Long-term Impact of Colonial Rule: Evidence from India, Harvard Business School Working Paper, No , Abhijit Banarjee, and Lakshmi Iyer. "History, Institutions and Economic Performance: the Legacy of Colonial Land Tenure Systems in India." American Economic Review 95, no. 4 (September 2005): Get this from JSTOR, or check Or you can get this paper from JSTOR. Daniel Berkowitz and Karen Clay, Initial Conditions and the Evolution of Institutions: Evidence from the American States, notes from Chapters 3, 5 and 6.

6 II. Institutions and Particular Markets Selected Papers IIA Finance R. Rajan and L. Zingales, The Great Reversals: The Politics of Financial Development in the 20 th Century Journal of Financial Economics, vol 69, 1, July 2003, T. Beck and R. Levine, Legal Institutions and Financial Development. in Handbook for New Institutional Economics, Eds: Claude Menard and Mary M. Shirley, Norwell MA: Kluwer Academic Publishers, ard_legalfindvlpmt.pdf IIB International Trade James Anderson and Douglas Marcouiler, Insecurity and the Pattern of Trade: An Empirical Investigation, Review of Economics and Statistics, 2002, 84(2): Daniel Berkowitz, Johannes Moenius and Katharina Pistor, Trade, Law and Product Complexity, Review of Economics and Statistics, 2006, 88(2): Daron Acemoglu, Simon Johnson and James Robinson, The Rise of Europe: Atlantic Trade, Institutional Change and Economic Growth, 2005, The American Economic Review, Vol. 95 No. 3, ntictrade.pdf III. Judges and Courts, Daniel Klerman and Paul Mahoney, The Value of Judicial Independence: Evidence from 18th Century England, American Law and Economics Review, Paul Mahoney, "The Common Law and Economic Growth: Hayek Might be Right," 30 J. Legal Studies Ramseyer, J Mark, "The Puzzling (In)dependence of Courts: A Comparative Approach," Journal of Legal Studies, vol. 23(2), pages , June.

7 Mark Ramseyer and Eric Rasmusen, Judicial Independence in a Civil Law Regime: The Evidence From Japan, Journal of Law, Economics and Organization, 13(2), 1997, pp Andrew Hanssen, Learning About Judicial Independence: Institutional Change in the State Courts, Journal of Legal Studies, Andrew Hanssen, Is There a Politically Optimal Level of Judicial Independence? American Economic Review, Tim Besley and Abigail Payne, Judicial Accountability and Economic Policy Outcomes: Evidence from Employment Discrimination Charges, LSE working paper, November Daniel Berkowitz and Karen Clay, "The Effect of Judicial Independence on Courts: Evidence from the American States," the Journal of Legal Studies 35(2): , June R. La Porta et al, Judicial Checks and Balances, Journal of Political Economy, Ed Glaeser and Andrei Shleifer, Legal Origins, Quarterly Journal of Economics, November Eric Maskin and Jean Tirole, The Politician and the Judge: Accountability in Government, American Economic Review, nd%20judges%20maskin%22 Andrei Shleifer and Nicola Gennaioli, "The Evolution of Precedent" Department of Economics, Harvard, January,