ECC2400 Current issues in applied microeconomics

Unit Guide Semester 2, 2010

The information contained in this unit guide is correct at time of publication. The University has the right to change any of the elements contained in this document at any time. Last updated: 20 Jul 2010

Table of Contents
ECC2400 Current issues in applied microeconomics - Semester 2, 2010...........................................1 Chief Examiner:...............................................................................................................................1 Lecturer(s) / Leader(s):....................................................................................................................1 Clayton.................................................................................................................................1 Tutor(s):.......................................................................................................................................................1 Unit synopsis...............................................................................................................................................2 Learning outcomes......................................................................................................................................2 Contact hours..............................................................................................................................................2 Unit relationships.........................................................................................................................................2 Prerequisites....................................................................................................................................2 Teaching and learning method....................................................................................................................3 Timetable information......................................................................................................................3 Unit Schedule..................................................................................................................................3 Unit Resources............................................................................................................................................4 Prescribed text(s) and readings.......................................................................................................4 Recommended text(s) and readings ................................................................................................8 Library resources.............................................................................................................................8 Blackboard (MUSO) .........................................................................................................................8 Assessment...............................................................................................................................................10 Assessment Summary...................................................................................................................10 Faculty assessment policy.............................................................................................................10 Hurdle requirements......................................................................................................................10 Second marking.............................................................................................................................10 Return of final marks ......................................................................................................................10 Applications for extension of time..................................................................................................10 Additional assessment information................................................................................................10 Special consideration .....................................................................................................................11 Assessment criteria - grading descriptors table.............................................................................12 Appendix ....................................................................................................................................................13

ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Chief Examiner:
Vai-Lam Mui

Lecturer(s) / Leader(s):
Clayton
Assoc. Prof. Vai-Lam Mui Contact hours: Thursday, 4-6 pm, and by appointment

Tutor(s):

ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Unit synopsis
Issues include the microeconomics of firm, the microeconomics of the welfare state, and the microeconomics of transitional economies such as China. Microeconomic difficulties in the public sector.

Learning outcomes
The learning goals associated with this unit are to: be familiar with the way in which economists apply economic theory to analyse how institutions and government microeconomic policies affect economic performance, as well as how such analysis informs their policy recommendations understand and critically evaluate current policy debates on issues of microeconomic policy and institutions evaluate the contributions and limitations of economic analysis for helping to understand and evaluate microeconomic policy options.

Contact hours
3 hours per week

Unit relationships
Prerequisites
ECC1000 or equivalent

ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Teaching and learning method

Lectures In the lectures, I will discuss the assigned readings for the lectures. For each topic discussed in this unit, I will usually first provide a brief overview of the key issues that are currently being studied and debated by scholars and policy makers. I will then discuss in depth a key article selected for this topic, and then provide a road map to some of the important developments for the particular topic in the literature. Tutorials With their emphasis on group discussion, the tutorials provide an excellent opportunity for you to refine your understanding of the issues and concepts discussed in the lectures. Each tutorial will usually focus on the materials we discuss in the lecture in the previous week. We shall discuss any questions that you may have regarding the materials discussed in the lecture. You are also strongly encouraged to share with the whole class regarding what you consider to be the major strengths and weaknesses of the articles discussed in the lectures.

Timetable information
For information on your timetable, including tutorial allocation if required, please refer to: http://allocate.its.monash.edu.au/

Unit Schedule
In the lectures, I will discuss the assigned readings for the lectures. For each topic discussed in this unit, I will usually first provide a brief overview of the key issues that are currently being studied and debated by scholars and policy makers. I will then discuss in depth a key article selected for this topic, and then provide a road map to some of the important developments for the particular topic in the literature. Tutorials With their emphasis on group discussion, the tutorials provide an excellent opportunity for you to refine your understanding of the issues and concepts discussed in the lectures. Each tutorial will usually focus on the materials we discuss in the lecture in the previous week. We shall discuss any questions that you may have regarding the materials discussed in the lecture. You are also strongly encouraged to share with the whole class regarding what you consider to be the major strengths and weaknesses of the articles discussed in the lectures. For detailed information on this unit, please check the Blackboard site on: http://muso.monash.edu.au/webct/urw/lc19907.tp0/cobaltMainFrame.dowebct

ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Unit Resources
Prescribed text(s) and readings
Only the (**) readings are required for the final examination. The other readings are included for your reference but are not required. You should consult these additional references in case you are interested in studying a particular topic further, and the (*) readings will usually be the good place to start for such further readings. Note that both the (**) readings and the (*) readings are grouped under essential readings in the library home page but only the (**) readings are required for the final examination. 1. Introduction: Do Institutions Matter? **Lecture Notes on Introduction: Do Institutions Matter? **Lecture notes on Comments on the Unit, the Exam, and the Essay Assignment **Olson, Mancur, Big Bills Left on the Sidewalk: Why Some Nations are Rich, and Others are Poor, Journal of Economic Perspectives, 10: 3-24, Spring, 1996. *World Bank, What are Institutions? Box 1.2, World Development Report 2002: Building Institutions for Markets, Chapter 1, pp.6-7, New York: Oxford University Press, 2002. *World Bank, Institutional Evolution and Economic Development: Private Traders and Public Rulers, Box 1.3, World Development Report 2002: Building Institutions for Markets, Chapter 1, p.7, New York: Oxford University Press, 2002. *Rodrik, Dani, Goodbye Washington Consensus? Hello Washington Confusion? A Review of the World Bank's Economic Growth in the 1990s: Learning from a Decade of Reform, Journal of Economic Literature, 44: 973-987, 2006 Stephen Knack and Philip Keefer, Institutions and Economic Performance: Cross-Country Tests Using Alternative Measures, Economics and Politics 7: 207-227, 1994. Lindbeck, Assar, The Swedish Experiment, Journal of Economic Literature, 35: 1273-1319, 1997. Acemoglu, Daron, Simon Johnson and James Robinson, The Colonial Origins of Comparative Development: An Empirical Investigation, American Economic Review, 91: 1369-1401, 2001.

Rodrik, Dani, How the Financial Crisis Has Killed the Governance Reform Agenda, posted on 19 May, 2009 in his Dani Rodrik's Weblog: Unconventional Thoughts on Economic Development and Globalization, available at http://rodrik.typepad.com/dani_rodriks_weblog/2009/05/how-the-financial-crisis-has-killed-the-governance-reform-a 2. Corruption **Lecture Notes on Corruption **Shleifer, Andrei and Robert Vishny, Corruption, Quarterly Journal of Economics, 108: 599-617, 1993. **Bertrand, Marianne, Simeon Djankov, Rema Hanna and Sendhil Mullainathan "Corruption in the Driving Licensing Process in Delhi, Economic and Political Weekly, February 2, 2008, 71-76. 4

ECC2400 Current issues in applied microeconomics - Semester 2, 2010 *Mauro, Paolo, Corruption and Growth, Quarterly Journal of Economics, 85: 681-712, 1995. *Transparency International, Global Corruption Report 2008 Executive Summary, available at http://www.transparency.org/publications/gcr/download_gcr#summary. Bardhan, Pranab, Corruption and Development: A Review of Issues, Journal of Economic Literature, 35: 1320-1346, 1997. Mui, Vai-Lam, Contracting in the Shadow of a Corrupt Court, Journal of Institutional and Theoretical Economics, 155: 249-283, June, 1999. Botero, Juan Carlos, Rafael La Porta, Florencio Lopez-de-Silanes, Andrei Shleifer, and Alexander Volokh, Judicial Reform, World Bank Research Observer, 18: 61-88, 2003. 3. Basic Game Theory for Applied Microeconomic Analysis I: Nash Equilibrium **Lecture Notes on Basic Game Theory for Institutional Analysis I: Nash Equilibrium *Dixit, Avinash and Susan Skeath, Games of Strategy, Chapter 4, New York: W.W. Norton & Company, 2004. Gibbons, Robert, An Introduction to Applicable Game Theory, Journal of Economic Perspectives, 11: 127-149, 1997. Royal Swedish Academy of Sciences, The Nobel Memorial Prize in Economics 1994, available at http://nobelprize.org/nobel_prizes/economics/laureates/1994/press.html Myerson, Roger: Nash Equilibrium and the History of Economic Theory, Journal of Economic Literature, 37: 1067-1082, 1999. 4. Basic Game Theory for Applied Microeconomic Analysis II: Subgame Perfect Equilibrium **Lecture Notes on Basic Game Theory for Institutional Analysis II: Sugame Perfect Equilibrium *Dixit, Avinash and Susan Skeath, Games of Strategy, Chapters 3 and 6, New York: W.W. Norton & Company, 2004. Selten, Reinhard, Re-Examination of the Perfectness Concept for Equilibrium Points in Extensive Games, International Journal of Game Theory, 4:25-55, 1975. Morrow, James, Game Theory for Political Scientists, Chapter 5, Princeton: New Jersey, 1994. Mui, Vai-Lam, The Economics of Envy, Journal of Economic Behavior and Organization,26: 311-336, 1995. Camerer, Colin, Behavioural Game Theory: Experiments in Strategic Interaction, Chapter 2, Princeton: Princeton University Press, 2003. 5. Moral Hazard and the Origins of the Global Financial Crisis **Lecture Notes on Moral Hazard and the Origin of the Global Financial Crisis **Gans, Joshua, Stephen King and Gregory Mankiw, Frontiers of Microeconomics, Chapter 23, pp. 517-520 in their Principles of Microeconomics, 4th Edition, CENGAGE Learning, 2008. 5

ECC2400 Current issues in applied microeconomics - Semester 2, 2010

**Cowen, Tyler, Bailout of Long-Term Capital: A Bad Precedent? The New York Times, December 26, 2008 (available at http://www.nytimes.com/2008/12/28/business/economy/28view.html?_r=1&partner=permalink&exprod=permalink). *Milgrom, Paul and John Roberts, Moral Hazard and Performance Incentives, Chapter 6 in their Economics, Organization, and Management, Prentice Hall: New Jersey, 1992. Boone, Peter, Simon Johnson and James Kwak, Web Page on Financial Crisis for Beginners, in their blog entitled The Baseline Scenario, available athttp://baselinescenario.com/financial-crisis-for-beginners/. Federal Reserve Bank of New York, Timelines of Policy Responses to the Global Financial Crisis, available at http://www.ny.frb.org/research/global_economy/policyresponses.html. 6. Credible Commitment, Financial Markets, and Economic Growth **Lecture Notes on Credible Commitment, Financial Markets, and Economic Growth **North, Douglass, and Barry Weingast. Constitutions and Commitment: The Evolution of Institutions Governing Public Choice in Seventeenth Century England, Journal of Economic History 49: 803-832, 1989. Reprinted in Lee Alston, Thrainn Eggertsson, and Dogulass North, eds., Empirical Studies in Institutional Changes, New York: Cambridge University Press, 1996. *Brunetti, Aymo, and Beatrice Weder, Political Credibility and Economic Growth in Less Developed Countries, Constitutional Political Economy, 5: 23-43, 1994. *Williamson, Oliver E., "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, 73: 519-540, 1983. Putnam, Robert, Making Democracy Work: Civic Traditions in Modern Italy, Chapter 4, Princeton: Princeton University Press, 1993. Weingast, Barry, "The Political Foundations of Democracy and the Rule of Law," American Political Science Review, 91: 245-263, 1997. Zhuravskaya, Ekaterina, Incentives to Provide Local Public Goods: Fiscal Federalism, Russian Style, Journal of Public Economics, 76: 337-368, 2000.

7. Financial Markets, Income Inequality, and the Political Economy of the Global Financial Crisis **Lecture notes on Financial Markets, Income Inequality, and the Political Economy of the Global Financial Crisis **Johnson, Simon, The Quiet Coup, The Atlantic, May, 2009, available at http://www.theatlantic.com/doc/200905/imf-advice. **Rodrik, Dani, Simon Johnson's Morality Tale, posted on 30, March, 2009 in his Dani Rodrik's Weblog: Unconventional Thoughts on Economic Development and Globalization, available at http://rodrik.typepad.com/dani_rodriks_weblog/2009/03/simon-johnsons-morality-tale.html. **Martin, Peter, People's Bank to Break the Big Four, The Age, July 8, 2009, available at http://business.theage.com.au/business/peoples-bank-to-break-the-big-four-20090707-dbtx.html. 6

ECC2400 Current issues in applied microeconomics - Semester 2, 2010 **Gans , Joshua, Nicholas Gruen, Christopher Joye, Stephen King, John Quiggin and Sam Wylie, Rules Underpin Prosperity, The Age, July 8, 2009, available at http://www.theage.com.au/opinion/rules-underpin-prosperity-20090707-dbsl.html?page=-1.

**Gunn, Dwyer, Predicting the Financial Crisis: A Q&A with Fault Lines Author Raghuram Rajan, The New York Times, June 17, 2010, available at http://freakonomics.blogs.nytimes.com/2010/06/17/predicting-the-financial-crisis-a-qa-with-fault-lines-author-raghu *Rajan, Raghuram, Has Financial Development Made the World Riskier? Paper presented Federal Reserve Bank of Kansas City Annual Conference, 2005, available at http://www.kansascityfed.org/publicat/sympos/2005/pdf/rajan2005.pdf. Stigler, George, The Theory of Economic Regulation, The Bell Journal of Economic and Management, 2:3-21, 1971. Rajan, Raghuram and Luigi Zingales , The Great Reversals: The Politics of Financial Development in the 20th Century, Journal of Financial Economics, 69: 5-50, 2003. Sylla, Richard, Schumpeter Redux: A Review of Raghuram G. Rajan and Luigi Zingaless Saving Capitalism from the Capitalist, Journal of Economic Literature, 44: 391-404, 2006. 8. Political Transitions I: Games of Political Transition **Lecture Notes on Political Transitions I: Games of Political Transition **Przeworski, Adam, Transitions to Democracy, Chapter 2, pp. 51-62 in his Democracy and the Market: Political and Economic Reforms in Eastern Europe and Latin America, New York: Cambridge University Press, 1991. *Roland, Gerard, Understanding Transition, Chapter 1 in his Transition and Economics: Politics, Markets, and Firms, Cambridge: MIT Press, 2000. Kuran, Timur, "Now out of Never: The Element of Surprise in the Eastern European Revolution of 1989," World Politics 44: 7-48, 1991. Acemoglu, Daron and James Robinson, Why Did the West Extend the Franchise: Democracy, Inequality, and Growth in Historical Perspective, Quarterly Journal of Economics, 115:1167-1199, 2000. Cason, Timothy and Vai-Lam Mui, Testing Political Economy Models of Reform in the Laboratory, American Economic Review (Papers and Proceedings), 93: 208-212, 2003. 9. Political Transitions II: Commitment, Political Transitions and Democratic Consolidation **Lecture Notes on Political Transitions II: Commitment, Political Transition and Democratic Consolidation **Acemoglu, Daron and James Robinson, Economic Origins of Dictatorship and Democracy, Chapter 2, New York: Cambridge University Press, pp. 15-47, 2005. *Przeworski, Adam and Covadonga Meseguer, Globalization and Democracy, in Pranab Bardhan, Samuel Bowles and Michael Wallerstein (eds), Globalization and Egalitarian Distribution. Princeton: Princeton University Press, 2005. Schedler, Andreas, What is Democratic Consolidation? Journal of Democracy, 9: 91-107, 1998. 7

ECC2400 Current issues in applied microeconomics - Semester 2, 2010 Aghion, Philippe; Alesina, Alberto; Trebbi, Francesco, Endogenous Political Institutions, Quarterly Journal of Economics, 119: 565-611, 2004. Epstein, David , Robert Bates, Jack Goldstone, Ida Kristensen and Sharyn O'Halloran, Democratic Transitions, American Journal of Political Science, 50: 551-569, 2006.

Article for the Essay Assignment ** North, Douglass, John Joseph Wallis and Barry Weingast, Violence and the Rise of Open-Access Orders, Journal of Democracy, 20: 55-68, 2009. .

Recommended text(s) and readings Library resources

The Monash University Library provides a range of services and resources that enable you to save time and be more efficient in your learning and research at URL: http://www.lib.monash.edu.au or via the Library tab in the my.monash portal.

Blackboard (MUSO)
All unit and lecture materials, plus other information of importance to students, are available through the MUSO (Monash University Studies Online) site. You can access MUSO via the My.Monash Portal: http://my.monash.edu.au Under Online Systems click the MUSO hyperlink In order for your MUSO unit(s) to function correctly, your computer needs to be set up and certain programs may need to be installed such as a compatible Java version (eg version 1.5.0). This can easily be done by going to http://www.monash.edu.au/muso/support/students/browserset.html to update the relevant software. You can contact MUSO Support by: Jobdesk: http://jobdesk.monash.edu.au/login/index.cfm?jobdesk_id=14 Email: muso.support@calt.monash.edu.au Phone: (+61 3) 9903-1268 Operational hours (Monday Thursday) local time Australia: 8 am to 10 pm (8pm Non Teaching period) Malaysia: 6 am to 8 pm (6 pm Non Teaching period) South Africa: 11pm to 1pm (11 am Non Teaching period) Operational hours (Friday) local time Australia: Australia: 8 am to 8 pm Malaysia: 6 am to 6 pm South Africa: 11pm to 11 am 8

ECC2400 Current issues in applied microeconomics - Semester 2, 2010 Operational hours (Saturday-Sunday) local time (Teaching and Exam Period Only) Australia: 1 pm to 5 pm Malaysia: 11 am to 3 pm South Africa: 4 am to 8 am Further information can be obtained from the following site http://www.monash.edu.au/muso/support/index.html

ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Assessment
Assessment Summary
Within semester assessment: 30% Examination (2 hours): 70%

Faculty assessment policy

For information regarding assessment policy, please refer to the appendix at the end of this Unit Guide.

Hurdle requirements
Written comments will be given to students for the essay assignment. Your marked assignments will be returned to you within three weeks after they are due. I will also provide feedback to your answers and analysis to tutorial questions during tutorial discussions. Hurdle requirements Your final mark will be the sum of the marks gained in all pieces of assessment, except that to pass this unit you must achieve at least 45% in the final examination. If you fail to satisfy the hurdle regarding the final examination mark then the maximum mark that can be returned for the unit is 43. Note: If your final mark is from 45% to 49% then the Board of Examiners may award a Near Pass. For more information on this policy see URL: http://www.buseco.monash.edu.au/asg/agu/policies/near-pass-fb-0507.html.

Second marking
For information regarding second marking practice, please refer to http://www.buseco.monash.edu.au/asg/agu/policies/written-assign.html#secmark

Return of final marks

The final mark that a student receives for a unit will be determined by the Board of Examiners on the recommendation of the Chief Examiner taking into account all aspects of assessment. The final mark for this unit will be released by the Board of Examiners on the date nominated in the Faculty Calendar.

Applications for extension of time

For information regarding extensions of time, please refer to http://www.buseco.monash.edu.au/asg/agu/policies/written-assign.html#extoftime

Additional assessment information

Essay (2000-2200 words): 30% (Due in lecture, 23 September 2010) Final examination (2 hours): 70%

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ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Special consideration
For information regarding special consideration, please refer to the appendix at the end of this Unit Guide.

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ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Assessment criteria - grading descriptors table

High Distinction Distinction (70 - 79%) (80%+) General Outstanding or A very high description exceptional work standard of in terms of work which understanding, demonstrates interpretation originality and and insight presentation Reading Strong evidence Evidence of of independent reading beyond reading beyond core texts and core texts and materials materials Knowledge Demonstrates Evidence of an awareness and of topic insight, awareness and understanding understanding of deeper and of deeper and more subtle aspects of the more subtle aspects of the topic topic. Ability to consider topic in the broader context of the discipline Articulation Demonstrates Evidence of of argument imagination or imagination or flair. flair. Demonstrates originality and independent thought Analytical Highly developed and evaluative analytical and skills evaluative skills Problem Ability to solve solving very challenging problems Expression Highly and developed skills presentation in expression appropriate and to the presentation. discipline Credit (60 - 69%) Pass (50 - 59%) Fail (Less than 50%) Fails to satisfy the minimum requirements

Demonstrates a Satisfies the high level of minimum understanding and requirements presentation and a degree of originality and insight Thorough Evidence of understanding of having read core core texts and texts and materials materials

Very little evidence of having read any of the core texts and materials

Scant knowledge Sound knowledge Knowledge of of principles and of principles and principles and concepts concepts at least concepts adequate to communicate intelligently in the topic and to serve as a basis for further study

Well-reasoned Sound argument Very little evidence argument based based on of ability to on broad evidence evidence construct coherent argument

Evidence of originality and independent thought Clear evidence Evidence of of analytical and analytical and evaluative skills evaluative skills Ability to solve non-routine problems Well developed skills in expression and presentation.

Some evidence Very little evidence of analytical and of analytical and evaluative skills evaluative skills Very little evidence of problem-solving skills Inadequate skills in expression and presentation. Inaccurate and inconsistent acknowledgement of sources.

Ability to use and Adequate apply fundamental problem-solving concepts and skills skills Good skills in Adequate skills expression and in expression presentation. and presentation Accurate and consistent acknowledgement of sources. Source: University of Adelaide 2005

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ECC2400 Current issues in applied microeconomics - Semester 2, 2010

Appendix
Please visit the following URL: http://www.buseco.monash.edu.au/unit-guide/appendix.html for further information about: Continuous improvement Assessment policy Grading Scale policy Special consideration Plagiarism, cheating and collusion Plagiarism register Non-discriminatory language Students with disabilities Using the Universitys computer and IT facilities Faculty policies Related links

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