Judith A Thornton
Applications of economic analysis to the economic problems of transforming socialist economies. Economic institutions. The role of the state. Privatization and the behavior of decentralized organizations. Integration into the world market. Prerequisite: micro- and macroeconomic theory and permission of instructor.
This course is about the links between institutional choice and economic growth, bringing together economic history and economic theory. In a historical overview, we review the classic models of the dynamic process of growth. The historical overview investigates how institutional choices in the command economies of the former Soviet Union and China influenced capital formation, human capital, productivity, and the role of technology in socialist growth strategy. Then, we turn to institutional change and economic performance in countries that undertook rapid institutional and structural change. Early Chinese reform involved the replacement of the Chinese communes with a household responsibility system, a substantial opening to the world market, in part through the establishment of special economic zones, and the rise of town-and-village enterprises that increased the forces of competition. But China’s gradual transition included retention of bureaucratic state-owned firms and a household registration system (hukuo) that created a gulf between urban and rural populations. Nevertheless, with rapid growth, millions of Chinese households moved out of poverty. In Eastern Europe and the Former Soviet Union, the rise and decline of Communism was the defining event of the Twentieth Century. In the command era, these states transferred the ownership of land, resources, and physical capital stocks to the government and established centralized administrative mechanisms for managing production. Today, most of these Soviet-style economic systems are gone as major economic reform programs evolve to put in place institutions underpinning what their policy-makers define as a “normal economy.” By “normal”, they mean a system in which independent individuals may enjoy private ownership of land, housing, and assets and are free to establish independent enterprises. Individuals may enter into voluntary, mutual exchange in markets at market-determined prices and enjoy the benefits of investing in productive assets and activities. After twenty years of experience, there is great variation in the institutions of public governance in these countries and in their economic performance. What can we learn from this mammoth social experiment? How did some transitional economies embark on a path of rapid structural change and growth and while others suffer stagnation and poverty? To understand the role of institutions in economic performance, we look at the incentive features of administrative and market institutions and their effects of economic arrangements, focusing on macroeconomic policies, market liberalization, property rights, enterprise governance, and the role of the state in providing public infrastructure and rule of law.
Student learning goals
1. Applied Goals The goal of the course is to survey the historical experience of a sample of economies undergoing rapid institutional change. We apply microeconomic principles to understand the choices and constraints policy-makers face and the performance outcomes they experience. Explore how institutional choices of policy-makers impact economic growth, productivity, and welfare and how economic performance influences formation of institutions. Explore how administrative decision-makers make decisions in non-market environments and how individuals and firms make choices subject to market constraints. Understand how government policies affect the allocation of resources, productivity, and growth. Understand how prices in a market system inform the decisions about what to produce, how to produce it, and who gets it.
2. Problem-Solving Goals Apply microeconomic theory to an understanding of the role of institutions in a variety of administrative and market systems. Use econometric tools to test hypotheses about the effects of institutional change on economic outcomes. Understand how economic arrangements influence the behavior of decision-makers, focusing on incentives, constraints, and sources of uncertainty. Understand how institutional constraints and incentives impact the economic environment faced by individuals. Understand how market structure and regulatory policies influences the allocation of resources.
General method of instruction
Class assignments and grading
The class requirements are: 1 A 6-10 page research paper, due Wednesday, June 2. Preparation of the research paper involves (a) a presentation of your research question on April 19, (b) a literature survey and critique on May 10, (c) a research presentation on May 26 or June 2. 2 Class presentations and brief, written critiques of selected course readings.
The course grade is based on a research paper (60%) and four brief presentations (40%). Examples of possible research topics include a case study, a critical survey of recent literature, or a brief empirical estimation, replicating or extending an existing model.