POLI 200C: States and Markets

Spring 2010, SSB 104

Course Website:

Professor Lawrence Broz

 

Professor Megumi Naoi

jlbroz@ucsd.edu

 

mnaoi@ucsd.edu

SSB 389

 

SSB 373

Office Hours: Tues 1:30-3:30

 

Office Hours: Tues 1-2, Wed 2-3

 

A.  Introduction

This module in the "Principles of Political Science" sequence provides an overview of the normative and positive issues associated with decentralized (market) and centralized (state) mechanisms of allocation.  It is motivated by two questions at the heart of the discipline: (1) What is the appropriate role of government in the economy?  (2) How do we explain the actual role of government in the economy? Substantial portions of the readings are from economics, including some canonical papers from industrial organization and welfare economics.  Topics covered include efficiency, social welfare, market failures, public goods, asymmetric information, moral hazard, adverse selection, government failures, regulation and rent-seeking, property rights, inefficient redistribution, time inconsistency, and political business cycles.
 
Required Books:
 
Recommended Books:

Students may also want to purchase a good microeconomics textbook, targeted for either advanced undergraduates or first-year graduate students in economics.  An example of the former is Hal A. Varian, Intermediate Microeconomics: A Modern Approach, 8th ed (W.W. Norton, 2009).  An example of the latter is David M. Kreps, A Course in Microeconomic Theory (Princeton UP, 1990).
B.  Requirements
1. Weekly Memo-Reflection & critiques of readings 

You will be submitting a weekly memo on a message board (http://polisci.ucsd.edu/ps200c/) by Monday 4:00 pm. The memo should be one paragraph to a page and contain either (i) a critique of some of the readings, (ii) possible discussion questions for the class meeting and your (tentative) answers, or, (iii) interesting ways to compare and contrast readings. The memo should not be a summary of readings. During the weeks you make a presentation, you do not need to turn in the memo.
 
2. Presentations on Discussion Questions

Each week, there will be presentations by students on questions that are posed on the syllabus. These presentations should be no more than 12 minutes each, and should be presented using PowerPoint slides or handouts. In general, weak presentations will simply summarize the readings ("A says x, B says y"). Good presentations will:

3.  Mid-term and Final papers
There will be one midterm and one final exam.  The midterm will be distributed on January 29th and due on February 5th.  The final will be given out on March 4th and due on March 17th (Monday) 4pm.  Each exam is a take-home essay. Each paper should not be more than seven pages, 1.5 space, and 12 fonts.  Late papers will be penalized one half grade per day.
 
C. Grades
Final grades will be awarded on the following basis:
1.  Participation in course activities (40% of grade).  These include:
a. Discussion of each week's assigned readings
b. Weekly Memo
c. Presentations
2.  Take two exams, mid term and final (60% of grade). 
D. Reading assignments
 All readings will be posted to the course webpage. All dates & assignments are subject to change.
 

Week 1:  Markets and States as Mechanisms of Allocation
How do we evaluate and compare alternative allocation mechanisms (i.e. systems for producing and exchanging resources)?  While markets are generally effective in the efficiency with which they allocate resources to their most valued uses, markets do not always work well.  Moreover, they can produce equity outcomes that will not necessarily be supported by all members of a community.  This segment of the course introduces the normative and positive aspects of markets and states as allocation mechanisms. 
 
Readings:

Week 2:  Market Failures and the Political Foundations of Economic Systems
What are the political foundations of a market economy? How do these preconditions differ with other forms of economic organization (e.g., traditional/cultural allocation, socialism, and communism)?  Certain preconditions are associated with competitive markets, including the provision of property rights.  In addition, markets work or fail for a variety of reasons, having to do with information, culture, and institutions. 
 
Discussion Questions:
   
Readings:

Week 3: Incentives in Market Exchange, Part I
How do markets respond to ill-defined property rights and public goods problems?  This segment surveys the voluntary market responses to these problems.
 
Discussion Questions:
 
Readings:
 
Week 4:  Incentives in Market Exchange, Part II
How do markets respond to transaction costs and externality problems? This segment surveys the voluntary market responses to these problems.  
Discussion Questions:
 
Readings:
 
Week 5:  Incentives in Market Exchange, Part III
How do markets respond to informational problems and other sorts of uncertainty in economic exchange?  This segment surveys these problems and the associated market responses.
 
Discussion Questions:
 
Readings:
 
Week 6:  Incentives in Politics
What are the similarities and differences between economic and political markets?   This segment surveys a range of economic arguments that have been applied to political topics, highlighting the usefulness and the limitations of the approach.  We cover some of the most prominent approaches (bulleted below) as well as the distinctive features of politics that complicate, or defy, economic analogy.
 
Discussion Questions:
 
Readings:
 
Week 7: Political Failure I-Credibility and Economic Policy
Why is it that even a benevolent social planner would produce sub-optimal economic policies?  This segment introduces the concept of credibility and incentives to adopt automatic rules and delegation schemes to conduct policy.  It also relaxes the benevolent dictator assumption and considers the credibility problem in the context of real-world politicians with electoral and/or partisan ambitions. 
 
Discussion Questions:
 
Readings:
 
Week 8: Structure of Interests in Society
How efficient are political markets when societies are composed of actors with heterogeneous interests and asymmetric incentives to act politically?  This segment covers the relationship between individual, group, and societal incentives and the consequences for political competition.
 
Discussion Questions:
 
Readings:
 
Week 9: Political Failure II- Special Interest Politics
Does the structure of interests in society help or hinder the government to maintain an appropriate role in the economy?  Governments may overstep their legitimate role in the economy due to an exchange between (re)election-seeking politicians and special interests, involving campaign contributions. 
 
Discussion Questions:
 
Readings
 
Week 10:  Political Failure, Part III - Predatory Government
What prevents government from overstepping its proper role and extracting resources for itself?  Why is control over politicians problematic?  With so much power over allocation, politicians face incentives to exploit their positions for personal enrichment, to the detriment of society.  This segment covers the topic of political rent-seeking and the associated policies that hinder economic performance.
 
Discussion Questions:
 
Readings: