Seminar 2 (Sept 20, 2013): Understanding institutions

I. The empirical effect of institutions

1. Explain how colonial history offers a natural experiment that may allow us to separate the causal effects of different sets of institutions.
2. 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?
3. In AJR's approach, we do not use information about European countries. Do you think this can affect the results, and if so in what way?

II. Drivers of the industrial revolution

1. In their book, Acemoglu and Robinson (2012, e.g. chapter 7) claim that the British Glorious revolution of 1688 was an important prerequisite for the industrial revolution. What is their justification for this claim? Does it seem reasonable?
2. Economic historial Bob Allen has argued that the reason for the industrial revolution occurring in Britain was their high labor costs and low energy (coal) prices relative to other countries. Discuss this argument. Does it invalidate Acemoglu and Robinson's argument?

III. Democratization

Consider 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
5. So far, China has followed a strategy not involving extension of the franchise. However, it may be argued that the Communist party's strong emphasis on infrastructure and industrial  investments is a way to redistribute towards the poor. Discuss whether it could be that commitment problems are less severe when redistribution is through investments than pure transfers, and whether this can explain the lack of democratization in China. (You may consult Walløe (2012) for further discussions of these issues)