Seminars ECON4921 Fall 2011

Seminar 1: Review of some econometric concepts (14.9.2011)

We base this review on David Stömberg's paper Natural Disasters, Economic Development, and Humanitarian Aid, particularly Tables 4 and 5, where he studies where natural disasters have the larges destructive effect, and what determined disaster relief. You may also benefit from looking through the the overview of econometrics before the seminar

1. Consider the second column of table 4. Set up an econometric model corresponding to this specification and explain the different parts of the econometric model. Pay particular attention to interpreting the coefficients and the error term (residual). What assumptions will you make about the error term?
2. Explain and interpret all the number is column the second column.
3. Interpret the number in the third column as well. Why does he get different results in the different columns, and why should he present several columns with seemingly similar results?
4. Consider now Table 5. Discuss the estimated  effect of news coverage on disaster relief in the first column. Why may this not be a good estimate of the causal effect of news coverage? How does this show up in the econometric model?
5. In the second column Strömberg uses instrumental variables. Explain what this is, why he uses it, and what assumptions has to be made for the instrument to be valid.
6. The instrument for news coverage is whether there were Olympic games  going on at the same time as the disaster struck. Discuss whether this is a valid instrument for news coverage of the disaster.
7. Compare the findings in the first and second columns of Table 5.

Seminar 2: Understanding institutions (28.9.2011)

Firs we discuss some topics relating to Acemoglu and Johnson's (2005) paper on unbundling institutions

1. Explain verbally what property rights institutions and contracting institutions are and how they may matter for economic performance
2. Consider a simple model where a private investor has wealth W that she is to share among a risk free investment a earning interest rate r in a foreign bank and investment k in a local firm yielding profits f(k) where f has the usual properties of a production function.
   1. Describe the investor's decision when domestic investments are certain
   2. Describe what happens when there is a probability p that the whole firm is confiscated by the government without any compensation
   3. How does this relate to your answer to question1
3. Consider again the investor with wealth W, who can either get a safe return with interest rate r, or invest k in a domestic project. The domestic project is run by a manager with now wealth, and succeeds with probability π. When it succeeds, the payoff is f(k), when it fails it is 0.
   1. Describe the investor’s optimal allocation of her investments
   2. Assume now that the investor can’t observe the successfulness of the project. What is the best strategy for the manager?
   3. If the investor can observe but not verify the outcome of the investment (i.e. she knows but can’t prove it), how does her investment decision depend on how the legal framework is?
4. Explain how colonial history offers a natural experiment that may allow us to separate the causal effects of different sets of institutions.
5. What two criteria have to be fulfilled for a valid IV strategy? How can we know whether these criteria are fulfilled? Do you think they are fulfilled here?

Next we'll discuss some topics related to Acemoglu and Robinson's (2001) paper on the extension of the franchise

1. Explain verbally the main building blocks of A&R's theory of democratization
2. What does it mean that the "revolution constraint is binding"
3. Discuss briefly what would happen if
   1. Revolutions become less destructive with a strong labor movement (higher µ^h)
   2. Home production becomes more productive
   3. Inequality increases
4. Consider an extension of the model where in democratic regimes, the elites can at certain times (when they are strong) commit a coup and revert to elite controlled government. How would this affect
   1. The workers' valuation of temporary redistribution versus transition to democracy
   2. The elites capability to avoid democratization