This an advanced microeconomics course with a development focus. Special attention is paid to the role of informational asymmetries and subsistence constraints on credit, insurance and labour markets. The course includes an in-depth treatment of child labour and infant mortality.
Bardhan, P. and C. Udry (1999, 2001), Development Microeconomics, Oxford University Press
Cigno, A. and F. C. Rosati (2005, 2006), The Economics of Child Labour, Oxford University Press
Learning Objectives
Develop the student's analytical skills with special reference to development issues.
Prerequisites
Given the substantial analytical content, the course presupposes a good grounding in conventional microeconomics and familiarity with the standard mathematical techniques of economic theory (constrained optimization, analytical geometry).
Teaching Methods
Lectures with student-instructor interaction.
Type of Assessment
Written examination with open questions
Course program
1. Revision of general equilibrium without asymmetric information: standard 2X2X2 model; credit, insurance and international trade.
2. Asymmetric information: moral hazard and adverse selection.
Readings:
Layard, P. R. G. and A. A. Walters (1978), Microeconomic Theory, Ch. 1, 2, 4, 12 and 13, McGraw-Hill, or equivalent
3. Credit markets with moral hazard and adverse selection, interlinked commodity-credit contracts.
Readings:
Bardhan, P. and C. Udry, op. cit, Ch. 7, 9 (Secs. I and III) and 11 (Sec. III)
J. E. Stiglitz and A. Weiss (1981), “Credit rationing in markets with imperfect information”, American Economic Review, vol. 71, pp. 393-410
4. Risk-coping and informal insurance in the absence of formal insurance markets, ex-post consumption smoothing and ex-ante income smoothing strategies.
Readings:
Bardhan, P. and C. Udry, op. cit, Ch. 8
Fitzsimons, E. (2007), “The effects of risk on education in Indonesia”, Economic Development and Cultural Change, vol. 56, pp. 1-25
Morduch, J. (1995), “Income smoothing and consumption smoothing”, Journal of Economic Perspectives, vol. 9, pp. 103-114
Portner, C. C. (2001), “Children as insurance”, Journal of Population Economics vol. 14, pp. 119-136
Townsend, R. M. (1995), “Consumption insurance: An evaluation of risk-bearing systems in low-income economies, Journal of Economic Perspectives, vol. 9, pp. 83-102
5. Asset and land markets, agricultural contracts in the presence of risk and moral hazard
Readings:
Bardhan, P. and C. Udry, op. cit, Ch. 6 (Secs. I and II)
6. Labour markets, efficiency wages, interlinked employment-credit contracts, bonded labour, migration.
Readings:
Bardhan, P. and C. Udry, op. cit., Ch. 4, 5 and 9 (Sec. II)
Dustman, C., T. Frattini and A. Glitz (2008), The labour market impact of immigration, CREAM D.P. 08/15
Genicot, G. (2002), “Bonded labor and serfdom: a paradox of voluntary choice”, Journal of Development Economics, vol. 67, pp. 101–127
7. Intergenerational transfers, the family as a substitute for the credit market and the welfare state.
Readings:
Cigno, A. and F. C. Rosati (2005, 2006), op. cit., Ch. 1 (Secs. 1.2 and 1.3)
Cigno, A. (2011), Lectures on Fertility, Savings, Intergenerational Transfers and Gender, Thuenen Series of Applied Economic Theory N. 119, University of Rostock, Institute of Economics
8. Education and child labour: effects of credit and insurance market imperfection.
Readings:
Cigno, A. and F. C. Rosati, op. cit., Introduction and Ch. 2
Bales, K. (2000), Disposable People: New Slavery in the Global Economy, University of California Press
Dessy, S. E. and S. Pallage (2005), “A theory of the worst forms of child labour”, Economic Journal, vol. 115, pp. 68-87
9. Child labour and international trade
Readings:
Cigno, A. and F. C. Rosati, op. cit., Ch. 4
Cigno, A., F. C. Rosati and L. Guarcello (2002), “Does globalization increase child labor?”, World Development, vol. 30, pp. 1579-1589
10. Fertility and infant mortality
Readings:
Cigno, A. and F. C. Rosati (2005, 2006), op. cit., Ch. 3 (Sec. 3.1)
Cigno, A. (1998), “Fertility decisions when infant survival is endogenous”, Journal of Population Economics 11, 21-28
Cigno, A. and G. Pinal (2004), "Endogenous child mortality, price of child-specific goods and fertility decisions: evidence from Argentina" in D. Heymann, F. Navajas and E. Bour (eds.), Latin American Economic Crises, London: Palgrave Macmillan
11. Policy issues: microcredit, conditional cash transfers, education grants, social risk management.
Readings:
Cigno, A. (2012), “How to deal with covert child labor, and give children an effective education, in a poor developing country”, World Bank Economic Review, vol. 26, pp. 61-67
Holzmann, R. and S. Jorgensen (2001), “Social risk management: A new conceptual framework for social protection and beyond”, International Tax and Public Finance, vol. 8, pp. 529-556
Morduch, J. (1999), “The microfinance promise”, Journal of Economic Literature, vol. 37, pp. 1569-1614