Econ Midterm 2

T/F: With the unitary model of the household, it matters who in the household does what

FALSE, that's the collective household model

T/F: Tanzania has high population densities and high capital formation

FALSE, they have low population and low capital formation which is hypothesized for being the reason Tanzania has had no internal conflict or issues with identity

What is FinTech?

Financial services such as digital wallets, insurance, facilitation of remittances, and pensions. Fintech is important as it opens up markets previously missing from a developing country, like obtaining flood insurance in Indonesia even if there isn't a local insurance provider.

How does Fintech ease constraints of banking in developing countries.

Financial technologies use modern IT to provide financial services, opening up doors for people not served by brick & mortar banks.

Why is intrahousehold bargaining so important?

Gender bargaining power is extremely important in understanding how households can contribute to the economy. Typically, when women work, they receive more bargaining power due to her ability to create income and opportunities - A woman's bargaining power affects the household budget shares spent on food, education, health, and limits the spending of male-related leisure activities or products like cigarettes. - A grandmother receiving pensions is more likely to spend it on the health of her granddaughter, including nutritional health, while a father or grandfather receiving pensions has no effect on girls. - Girls are more likely to be educated when a woman has substantial bargaining power in her household - Giving women access to formal property titles is important to her fertility choices and helps lower fertility rates because her input matters more

Describe how the creation of new group identity has been helpful in economic development in Tanzania

The creation of a new group identity centered around Swahili culture and language in Tanzania has facilitated economic development by promoting regional integration and fostering a sense of shared identity among diverse communities. This unity has helped overcome ethnic and linguistic barriers, encouraging cooperation and trade within the country, outside of it, contributing to economic growth, and enhancing the overall stability of Tanzania's economy

One thing about networks that is unique to group identity is the way in which overall utility is derived. Explain that difference.

Utility for networks is a FUNCTION of MY consumption + my network's consumption, with differing weight applied to the network's consumption depending how altruistic they are. Utility for social groups comes from individual purpose and belonging and consumption, but also receiving the relative utility of being in opposition of another group.

What is moral hazard?

When a principle (government) says something but the agents (companies) aren't sufficiently motivated to see it the way through the way the principle would have wanted, or feel like they are insulated by a false sense of protection by the principle.

Describe why/why not a agricultural family in developing country might want to or NOT want to invest in deposit insurance

YES -Financial Stability: Deposit insurance can enhance confidence in the banking system, reducing the risk of bank runs and financial panics, which can contribute to overall financial stability. -Encourages Savings: Knowing their deposits are protected, individuals are more likely to save and deposit money in banks, fostering a culture of savings and capital accumulation. NO - Moral Hazard: Deposit insurance may create a moral hazard problem, where banks take excessive risks, assuming that the government will bail them out in case of failure, leading to risky lending practices. Market Distortion: Deposit insurance can distort the market by encouraging consumers to choose banks solely based on the level of insurance coverage rather than the bank's financial soundness or services.

Can you chose to be part of a certain group identity?

Yes, even though some group identities are ingrained in individuals, like race, you can also chose to speak a certain language or practice a certain religion.

Define path dependence with an example

"where you place x will inevitably affect y"... a decision made early on will inevitably affect all future decisions and outcomes. example: Redlining - when there were certain areas within cities in which banks would not give loans. Now, while the red lines are not in existence on any official maps, these areas still experience some of the worst heat in summer because of the absence of trees and abundance of concrete due to poor planning and failure to upkeep.

What is Ujamaa?

- Means "family" in Swahili - Ujamaa were planned villages that Tanzanians were coerced into moving into - 70% of rural Tanzanian population relocated in the 1970s - State started dictating people's labor schedules; people didn't like it and started to revolt, but state put it down and became more authoritarian

What are some inefficiencies related to networks? Name 4

1. "Others" are shut out of opportunities for employment or positions that they actually may have excelled at, and could have brought diverse and more efficient perspectives. Could lead to misallocations of resources by only conducting business with someone within your network 2. Individual mobility is severely restricted in existing networks, movement out to more economically efficient positions is not encouraged in an existing network 3. Groupthink and Stagnation: In some cases, networks can foster groupthink, where individuals within a network conform to prevailing opinions and avoid dissenting views. 4. Effort can be disincentivized by the free-rider problem, (you know your network will take care of you)

Name ways in which women's bargaining power can be increased through policies.

1. Requiring wives to have access to formal property titles 2. Emphasis and incentives for furthering women's education 3. Financial inclusion, promoting women's access to financial services, such as microcredit, savings accounts, and insurance. 4. Employment, implement policies that promote women's participation in the formal labor market.

Explain how uncertainty leads to risk in microeconomics

1. Agricultural Production: Farmers in developing countries often face both risk and uncertainty in their farming activities. They may be uncertain about weather conditions, making it challenging to predict crop yields accurately. Additionally, they face risks associated with crop diseases, pest infestations, and fluctuating market prices, which have known probabilities. 2. Microfinance Lending: Microfinance institutions in developing countries may encounter uncertainty regarding borrowers' ability to repay loans due to unpredictable income sources or lack of collateral, which makes them more uncertain about 3. Lack of networks: Networks often serve as sources of information and knowledge. When individuals lack access to networks, they may not have access to crucial information about job opportunities, market trends, industry insights, or best practices. This informational deficit can make it challenging to make informed decisions, leading to uncertainty about the best course of action.

How are remittances good for banks?

1. As remittances come in, banks become better with their branches, people and products 2. Processing remittance flows provides banks with info on income of households to better provide loans 3. There is more money in the financial system which allows for a more robust economic sphere.

Describe the 2 types of bargaining games

1. Cooperative bargaining = if you don't achieve something, the other player doesn't either 2. Competitive bargaining = if you lose something, the other person is directly gaining something

explain the social penalties related to defaulting on group loans

1. Defaulter can't partake in community events 2. Tarnishment of their reputation 3. Silent treatment 4. Violence

How do property rights affect economic activity? Name 4 ways

1. Expropriation risk = insecure property rights imply that individuals may fail to realize the fruits of their investment efforts, fearing that the government can seize it at any time. 2. unproductive costs = insecure property rights lead to costs that individuals have to incur to defend their property which is economically unproductive. 3. failure to facilitate gains from trade = a productive economy requires that assets are used by those who can do so most productively. Without property rights, assets aren't used with maximum productivity. 4. use of property rights in supporting other transactions = improving property rights allow market economies to rely on collateral to support other financial market transactions 5. women and property rights = studies have shown that when the title of a property also encompasses the woman, she has more bargaining power and thus more likely to make decisions that are economically beneficial to her family and herself.

Describe the similarities in the findings between the Abraham and Khanna's research

1. Focus on Developing Economies: Both studies are set in India, a developing economy, and they investigate the impact of specific interventions (mobile phone usage in fisheries and educational reforms) on economic outcomes. 2. Reduction in Information Asymmetry: A key similarity in their findings is the reduction in information asymmetry. Abraham's study demonstrated how mobile phones reduced information gaps among fishermen, leading to more efficient markets. Khanna's research indicated that education reforms, by increasing the number of educated individuals, could potentially reduce asymmetry in the labor market. 3. Increased Productivity and Welfare: Both researchers observed increases in productivity and welfare as a result of the interventions. Abraham noted an increase in the productivity of the fishing industry and an improvement in the quality of life for fishermen. Khanna's findings suggest that educational reforms potentially increase the productivity of the workforce, although the benefits are distributed unevenly across different skill levels.

Describe the 3 elements of Tanzania's social/economic structure that has allowed them to be uncharacteristically peaceful in their history.

1. Fragmented ethnicities: Tanzania has over 130 ethnic groups with no majority or minority. Also, the country is sparsely and equally distributed throughout the population, signifying that there are significant coordination problems that face any group that wants to rise up to rebel 2. Lack of natural resources: Tanzania is not endowed with an exorbitant amount of natural resources, with fertile land and other desirable resources very well dispersed. This creates a less hostile environment with little physical competition for resources, leading to a more peaceful environment 3. Creation of a New Identity: Through the initiative of the Ujamaa ideology, Tanzania actively worked to create a new collective identity centered around communal values, self-reliance, and shared responsibility. This ideology encouraged Tanzanians to see themselves as part of a larger family or community, transcending ethnic and regional divisions

Describe the pros of the collective household model

1. Gender Economics: The collective model is particularly valuable for studying gender economics and how gender roles and power dynamics influence resource allocation within households. It can shed light on issues of gender-based discrimination and inequality. 2. Resource Allocation Analysis: The model allows for a more detailed analysis of how resources are allocated within households. It can assess the trade-offs and compromises made during the bargaining process and how these decisions affect consumption and well-being. 3. Intra-Household Inequality: The model allows for the analysis of intra-household inequality, which can be essential for understanding disparities in well-being among household members. It can identify who benefits more from resource allocation decisions and who may be disadvantaged.

Describe the differences in the outcomes of large amounts of government spending in Duflo and Khanna's papers

1. Immediate vs. Long-Term Benefits: Duflo's findings show immediate benefits in child nutrition, a direct and short-term impact. In contrast, Khanna's findings about education reforms point to long-term economic effects in earnings and labor market shifts. 2. Who is Benefitting: In Duflo's paper, the findings suggest that while girls benefit nutritionally when a grandmother is receiving a pension, with no negative effect on the nutrition of a boy in the household, Khanna's research demonstrates that in an overall market, there are both winners and losers of this government expenditure. While skilled workers saw a drop in wages, this directly benefitted the unskilled workers as there's an increase in demand for unskilled workers given the increase of supply of skilled workers.

What are some effects that fragmented group identity can have on public policy?

1. Protectionism and tariffs in trade 2. Policies that reverse prior bad policies like affirmative action programs in Tanzania 3. Access to certain public goods or infrastructure can be limited for certain types of groups which could lead to overuse or underuse 4. many supply chains are formed around group identity rather than the most efficient deal/price

Describe the similarities in the outcomes of large amounts of government spending in Duflo and Khanna's papers

1. Improvement in Beneficiary Welfare: Both studies show positive outcomes for specific groups thanks to gov. expenditures. Duflo's study reveals improved nutritional status among girls in households receiving pensions, while Khanna's demonstrates increased earnings potential due to education reforms. 2. Redistribution Effects: Each study highlights a form of redistribution of money benefitting a third party - Duflo through direct cash transfers improving young girl's health, and Khanna through education reforms benefiting unskilled workers. 3. Complexity in Policy Impact: Both studies indicate that government expenditures have complex and multifaceted impacts, not all of which are immediately apparent or uniformly positive across all groups.

What are some benefits related to networks? Name 6

1. Information Sharing: Networks facilitate the flow of information, which can be crucial for decision-making in economic activities. 2. Resource Mobilization: Networks provide access to a wide range of resources, including financial capital, human capital, and physical assets. 3. Market Access: Networks can help businesses and individuals gain access to new markets and customer segments. 4. Knowledge Transfer: Networks are valuable platforms for knowledge transfer and learning. 5. Reduced Transaction Costs: Networks can reduce transaction costs by facilitating trust and reducing the need for formal contracts and intermediaries. Trust within a network can streamline negotiations and transactions. 6. Social Capital: Networks contribute to the development of social capital, which includes trust, reciprocity, and social norms.

What do remittances do to the banking sector of a nation? Name 3 ways it expands its "breadth and depth"

1. Interbank/wire transfer fees typically can be an important source of revenue for banks, especially small ones 2. Middle/lower income families in developing countries don't typically put their money into banks, yet the opportunity of remittances facilitates a relationship with a bank and opens new and huge markets 3. Processing remittance flows provides banks with information on the income of households which can help banks better understand their customers and offer better loans.

Why are the poor unable to save their money?

1. Lack of access to credit, like in Africa, signifying that many poor people slowly build a house or other physical and dangerous assets to shield their money 2. Poverty makes people impatient... the possession of wealth encourages people psychologically to invest in becoming more patient in the US, but this is very different 3. Poor, especially farmers, find it difficult to hold on to even small amounts of money, especially during harvest seasons. There are little savings so there is little ability to hold onto new cash money

What is the argument (are the arguments) underpinning the need for microloans?

1. Lack of access to traditional banking: Many low-income individuals and small businesses in developing countries lack access to formal banking services. They may not have a bank account, collateral, or a credit history, making it challenging for them to obtain loans from traditional financial institutions. Microloans promote financial inclusion by bringing unbanked and underbanked populations into the formal financial system. 2. Gender Empowerment: Women face more significant barriers to accessing financial services. By providing women with access to credit, microfinance can empower them economically, enhance their decision-making power within households, and contribute to gender equality. 3. Risk Mitigation: Microloans can serve as a financial safety net for borrowers during times of unexpected expenses, such as medical emergencies or crop failures. Having access to credit can help individuals manage financial shocks and reduce vulnerability. 4. Local Economic Development: Small and microenterprises often play a significant role in local economies. Microloans can help these businesses thrive, create jobs, stimulate local economic growth, and contribute to community development.

Name 3 negatives of having high fractionalization for development

1. Many different interest groups lobbying the government can lead to political instability or the inability to address specific concerns 2. The one group that is in power might give specific consideration to just one group, leading to corruption and misallocation 3. With many little fractionalized groups dispersed around a country, transaction costs for trade might be much higher with a lack of connection between groups

Explain the externalities related to mobile phone adoption in Africa. There are 3 big ones

1. Mobile phones open up the door for fintech and mobile banking services to allow citizens better access to credit 2. Mobile phone adoption opens up new job opportunities for people who fix phones, sell them, or sell airtime 3. Leads to better infrastructure development, if you need a cell tower, then you need to build roads first.

Give 3 positives of high fractionalization for development

1. More diverse groups means more competition, which can be extremely beneficial in a free economy 2. When fractionalized groups each specialize in what they are best at, they can all produce complimentary inputs that make production of specific goods/ideas very efficient and effective 3. When there is very high fractionalization, no group is big enough to rebel or fight

Describe the differences in the findings between Abraham and Khanna's research

1. Nature of Economic Benefits: - Abraham: The benefits are more direct and tangible, like increased income due to better market prices and reduced wastage of catch. - Khanna: The economic benefits are more nuanced and include both direct (increased earnings for educated individuals) and indirect effects (shifts in labor market dynamics). 2. Nature of Gains and Losses: - Abraham: The introduction of mobile phones led to gains for virtually all members of the fishing community, with no evident group experiencing a loss as a direct result of this technological intervention. - Khanna: The educational reforms, while beneficial in increasing educational attainment and potential individual earnings, led to a situation where skilled workers might be worse off due to increased competition and a reduction in the premium on skilled labor. 3. Type of Capital - Abraham's Study (Physical Capital): This research examines the immediate benefits of physical capital, specifically mobile phones, as tools that directly enhance efficiency and productivity in the fishing industry without the need for specialized skills. - Khanna's Study (Human Capital): Khanna's work explores the long-term and complex impacts of investing in human capital through education reforms, which gradually improve the workforce's skill set and economic prospects, but with nuanced effects on different labor market segments.

The utility function is max utility = (utility)/(constraints). What goes into the utility portion of this calculation?

1. Preferred consumer goods and services (preferences) 2. Social relationships 3. Experiences 4. Leisure time

Describe some cons of using the unitary model of hosueholds.

1. Simplistic Assumptions = The unitary model assumes that all household members have the same preferences and goals, which is often an oversimplification of real-world dynamics. In reality, individuals within a household may have diverse preferences, leading to intra-household conflicts and disagreements. 2. Ignores Power Dynamics = The model does not account for differences in bargaining power among household members. In many households, certain individuals may have more influence over decision-making, which can result in resource allocation that does not reflect the collective preferences of all members. 3. Fails to Capture Inequality = The unitary model assumes that resources are equally shared among household members, ignoring potential disparities in income, consumption, and well-being within the household. It does not address issues of intra-household inequality.

When there are no banks available, list the constraints faced by poor individuals that limit their maximization of utility

1. The inability to find savers and borrowers, inefficient markets 2. lack of liquidity 3. Lack of security in times of crisis or when in need of loan 4. Harder and more expensive to send remittances

Describe Tanzania's economic policies after independence, with 4 points.

1. Ujamaa Socialism: Tanzania, under President Julius Nyerere, adopted a form of African socialism known as "Ujamaa" in the late 1960s. This policy emphasized self-reliance, rural development, and the establishment of collective agriculture. It aimed to reduce dependence on foreign aid and promote equality among citizens. 2. Nationalization and State Control: The government nationalized major industries and services, including banks, mining companies, and utilities. This move was intended to control the country's resources and redistribute wealth, aligning with the socialist ideology of the time. 3. Faced with economic challenges and inefficiencies in the state-run sectors, Tanzania began shifting towards market-oriented reforms in the 1980s. This included privatization of state-owned enterprises, liberalization of trade policies, and encouragement of foreign investment, marking a significant departure from the earlier socialist policies. 4. The 2000s saw significant growth in sectors such as mining, telecommunications, and tourism. The discovery and exploitation of natural gas reserves also began to play a more prominent role in the economy.

The utility function is max utility = (utility)/(constraints). What are the 3 elements that go into the constraint portion of this calculation?

1. Uncertainty 2. Externalities 3. Time

Name 3 negatives of having high polarization for development

1. Unequal disbursement of public goods 2. Higher probability of civil conflict/war 3. Trust is hard to form which could lead to inefficiencies in trade or distribution

What are some limitations of microfinance?

1. poor people can't just up and start a business 2. the frequent repayments are sometimes too frequent 3. Failure is a normal entrepreneurial roadblock, yet microloans don't really leave room for failure 4. The social network ties one person's actions to everyone else, so any minor shift in beliefs might lead to one person deciding to not repay, meaning everyone might also be inspired after seeing that the first person did it successfully.

Describe some pros of using the unitary model of households

1. simplicity = The unitary model offers a straightforward and simplified representation of household decision-making, making it easier to model and analyze mathematically. 2. aggregation = The unitary model allows for the aggregation of individual preferences and incomes into a single representation of household behavior. This can be particularly useful when dealing with large datasets. 3. policy analysis = The unitary model can be a useful tool for policy analysis when policy decisions are made at the household level or when considering the impact of policies on overall household welfare. It provides a simplified way to assess how changes in policies or economic conditions may affect households as a whole.

List some reasons why banks don't like to lend to poor people

1. the fixed costs of maintaining a bank account often are higher than the amount of deposits or loans given to the poor people 2. there are credit risks associated with poor people and higher risks of default 3. they often lack collateral to secure loans 4. many people rely on volatile incomes that heighten risk of default

Describe what a ROSCA is and why it is a better tool that can help poor people save

A ROSCA, or Rotating Savings and Credit Association, is a financial tool used primarily in developing countries to help individuals, particularly those with limited access to formal banking services, save money and access credit. In a ROSCA, a group of people come together and agree to contribute a fixed amount of money regularly into a common pool. Each member takes turns receiving the entire pool, allowing them to use the lump sum for various purposes, such as starting or expanding a small business, covering unexpected expenses, or investing in education. ROSCAs are beneficial for poor people in developing countries because they provide a structured savings mechanism and a source of credit without the need for formal financial institutions, fostering financial inclusion and empowering individuals to improve their financial stability.

Give an example of when social networks can overlap with group identities.

A close-knit agricultural community in India are part of the same social network due to their shared interests in farming, and their necessity to work together. Yet, many people within that community might also be part of the same caste. The shared caste identity serves as a basis for social cohesion, mutual support, and collaboration among community members, especially in the context of economic activities and cultural traditions. While the social network extends beyond caste boundaries to some extent, the caste identity remains a prominent and enduring feature of the community's social fabric.

What is microfinance?

A financial service that provides access to small-scale loans, savings accounts, group loans, insurance, and other basic financial products and services to low-income individuals, typically in developing countries or underserved communities. Typically, they are group-inforced

What is a market failure? Give an example.

A market failure occurs when the allocation of goods and services by a free market is not efficient, often leading to a net social welfare loss. An example of this could be the education system in India before the reforms in the late 1990's; prior to the reforms, there might have been an inadequate supply of quality education, especially in rural or low-literacy regions. This lack of supply can be seen as a market failure because the education system was not meeting the demand or needs of the population effectively.

One of the major benefits of networks, not including utility or constraints, is _______. Explain how networks can help or hinder this.

Access to information. - Networks can either ease the diffusion of information or restrict information - Networks typically have specialized knowledge in an area - Moral hazard can decrease, as networks' individual members are more observable and the actions of the agent can be monitored and shared with the principal

Explain what advantageous selection is in insurance markets and how it relates to imperfect markets

Advantageous selection describes a scenario where individuals or businesses with lower risk profiles are more likely to purchase insurance policies than those with higher risk profiles. In other words, the individuals who are willing to pay the most for insurance are also the most risk adverse, and thus associated with the lowest costs. This means that premiums are lowered, meaning that it is the opposite of an imperfect market.

Explain what adverse selection is in insurance markets and how it relates to imperfect markets

Adverse selection in insurance markets occurs when high-risk individuals are MORE likely to purchase insurance, leading to unfavorable outcomes for insurers and potentially higher premiums for everyone. This is because of the inherent information asymmetry between insurers and policyholders, which is the cause of imperfect markets where there are higher premiums for everyone.

Describe how group identity can maximize individual utility

Allows for a sense of belonging, purpose, security, AND gives you the relative utility being in opposition of another group

What is polarization?

Answers the question "how 50/50 are these two groups?" In polarized societies, ethnic or cultural identities become more salient and are used as primary markers of identity. People increasingly identify with their own group and may view other groups with suspicion or hostility, typically this happens when there is a 50/50 split between 2 groups that are of similar size

What is fractionalization?

Answers the question "how many", typically the amount of different groups that exist

WHY does Khanna's paper suggest that unskilled workers benefit while skilled workers lose out given widespread educational reforms?

As more individuals move into skilled jobs, there can be a relative shortage of workers in unskilled positions. This shortage can increase the demand for unskilled labor, potentially raising their wages and improving employment opportunities for unskilled workers.

Describe the relationship between fractionalization and polarization.

At super high and low levels of fractionalization, polarization is quite low. This is because with too many small groups, there is little likelihood of one group just choosing another group to hate. Yet at middle levels of fractionalization, polarization is very high, as it's more of a 50/50 split that could divide two groups.

What happened in India between 1969 and 1990 in the financial sector?

Between 1969 and 1990, India implemented a significant bank nationalization program, which involved the government taking control of several major banks. This move aimed to expand the presence of banks into rural areas and promote financial inclusion (you must open 4 banks in the rural areas if you want 1 in the city). By nationalizing banks, the government sought to direct banking resources towards rural and agricultural development, improving access to credit and financial services for farmers and underserved populations. This initiative played a crucial role in alleviating poverty levels in India.

What happens when there is a lack of banks in an area

Black markets and loan sharks become prevalent, leading to inefficiencies in the economy as these are unproductive areas that are not reported on or taxed. Also, people end up putting their money into other, less economically productive assets like houses, jewelry or other riskier investments

What are communal property rights and why might this be an effective way to heighten women's bargaining power in the household

Communal property rights refer to a system of resource management where a group of individuals or a community collectively owns and manages a particular resource or asset. This system is in contrast to private property rights, where individual ownership prevails, and public property rights, where the government or a central authority controls the resource. Communal property rights enhance women's bargaining power in households by granting them direct access to resources, economic contributions, and increased social standing, enabling more equitable decision-making and negotiation leverage within the family. Legal protections and community recognition of women's rights to communal property further strengthen their position in household matters.

Describe some high level costs and benefits of diversity

Costs 1. Conflict of preferences can lead to violence 2. Racism, prejudice, oppression 3. Policies can become counterproductive under this influence Benefits 1. Variety of abilities, experiences and cultures 2. Leads to innovation, creativity, and specialization

Why might ethnic polarization cause civil war

Ethnic polarization is more likely to lead to civil war due to its heightened hostility, political instrumentalization, and potential for grievances to escalate into violent confrontations. Both groups are 50/50 split, so they are similar in size allowing for coordination and heightened tensions.

What is group-lending in microfinance and why is it more effective in developing countries?

Group-lending are loans that make a borrower's neighbors co-signers to loans, as neighbors have incentives to monitor each other and to exclude risky borrowers. It's effective because many developing countries are collectivistic group-oriented cultures, thus the social penalties that would be faced is a strong incentive to keep lenders accountable. Also, as many people in developing countries don't have collateral, group loans are a good way to overcome this obstacle

What is the difference between hiding and shielding income

Hiding income involves actively stashing away money or certain job opportunities away from anyone in the household. Shielding money includes putting money into investments like education, a 401k, or other long-term accounts to protect the money from being spent.

Give an example where micro-finance and bank expansion worked

In 1969-1990 in India, bank nationalization implemented policy that expanded branches in unbanked areas, and kept interest rates low in rural areas. The result was that poverty was reduced in rural areas with the biggest impacts on least developed areas.

What are externalities?

In economics, externalities are costs or benefits that affect a party who did not choose to incur those costs or benefits. They are considered a form of market failure because the market does not account for these costs or benefits, leading to inefficient allocation of resources. Externalities can be either positive or negative

What is the relationship between microfinance and missing markets?

In many developing countries, there is a missing market for small loans or small depositers, since there are many risks and costs associated with people that hold small bank accounts. Microfinance fills this missing market.

Describe the context of the Duflo paper, what the study revolved around.

In the early 1990s, the benefits and coverage of the South African social pension program were significantly expanded for the black population. Duflo took advantage of this expansion by studying the effects of pensions received by the elderly and how it affected the health and nutritional status of children or dependents.

What is an institution (ACCORDING TO NORTH)?

Institutions are the humanly devised constraints that structure political, economic and social interaction consisting of both formal and informal constraints

What is intrahousehold bargaining?

Intrahousehold bargaining refers to the negotiation and decision-making processes that occur within a household or family unit, where members collectively make choices about resource allocation, consumption, and various aspects of daily life. It involves discussions and sometimes conflicts among household members to determine how resources, such as income, food, time, and labor, will be distributed and utilized among different individuals within the household.

Describe the context of the Khanna paper, what changes were made.

Khana's research was about investigating the impact of India's large-scale investments in education that occurred around the late 1990's and early 2000's, known as the District Primary Education Program (DPEP). The DPEP expanded public schooling in half the country, specifically targeting low-literacy regions.

Describe the term LeapFrogging

Leapfrogging explains why unlimited data is so cheap in Tanzania/Angola. This happens when developing countries have a missing market and adopt technologies already established in developed countries that are relatively cheap now. There were no first movers, no legacy costs or players, and no competitors to compete with, so these countries can adapt technologies with ease and at low costs.

How do networks maximize utility subject to constraints? Say also which constraints are eased...

Maximize Utility: - The "warm glow" of getting utility from someone else's success - Eases choice of consumption Subject to Constraints: - Resource limitations - Security/privacy concerns of other members - certain rules or norms can be constraining Some Constraints are eased: - Risk sharing and pooling of resources to overcome monetary constraints - lower barriers to entry for immigration or in the job market

The goal of microeconomics is to....

Maximize the sum of EXPECTED utility over time subject to constraints

List when microfinance typically works and where it typically fails.

Microfinance aids in increasing household consumption along with specific types of investment like education. However, they're not as effective with small businesses, as it is harder to expand with small loans. If it's a family/individual business, it can work.

How can microfinance overcome moral hazard issues with lending to the poor?

Microfinance can address moral hazard issues, which involve borrowers taking excessive risks due to the belief that they can shift the consequences onto lenders, by implementing mechanisms like joint liability, where borrowers are collectively responsible for repayment, and peer monitoring. Additionally, sequential lending and credit scoring can encourage responsible behavior and reduce the temptation for borrowers to engage in risky or opportunistic behavior, ensuring that the poor use loans responsibly.

What is a missing market? Give an example.

Missing markets refer to situations where private markets fail to provide goods or services efficiently, and government intervention or alternative mechanisms may be necessary to address the market failures. An example is crop insurance markets; in the US, farmers can possess this, however, in developing countries, crop insurance markets may not be viable in small or fragmented agricultural sectors, as the risk-pooling mechanism may not work effectively. similarly, administering crop insurance can be expensive, particularly in areas with low population density or poor infrastructure. Insurers may find it cost-prohibitive to offer insurance in such regions

Do you get utility from being in opposition to another social group like you do with group identity?

NO because group identity is often formed in opposition to other identities, the way someone defines themself is very different from social networks. More competition.

Does high fractionalization always mean low polarization?

NO, there can be a 50/50 split between a smaller subsection of the population with still many other fractionalized groups.

What is the difference between networks and group identity

Networks are based on personal connections and shared interests, typically are chosen. Group identity is based on inherent characteristics and shared affiliations, which can be either chosen or unchosen, and are typically defined in opposition to another group.

Describe how mobile phones reduced constraints to Indian fisherman's utility

One major constraint to maximizing utility as a fisherman is uncertainty about where to go to obtain the fish, as well as where to sell the fish in an imperfect market. Upon giving networks of fishermen mobile phones, fish markets became more efficient with less price dispersion because information was better disseminated throughout the network. Fishermen could report when the boats were coming in to dock, could share prime fishing locations, and could share market prices in different areas.

Describe 3 pros and 3 cons of having a large family in a developing country

PROS 1. Social support and having kids as insurance/safety net in old age 2. In an agrarian-centric country, child labor on the farm is essential in getting the many duties done 3. In some countries, it is a cultural or religious norm to have a large family CONS 1. Bigger families mean a larger financial burden with quickly depleting resources 2. In a modernizing economy, it becomes more challenging to send many children off to college, leading to unequal treatment of kids 3. The more children a woman has, the more risk she is consistently put in, especially in a developing country

Describe the Duflo Daughters and Granddaughters paper

Pensions received by one group (grandmothers) allowed for a more equal distribution of resources among children... the girls get better outcomes and the boys don't get worse outcomes.

Describe the basis of the Rotten Kin paper and what it demonstrates about economic growth

People, especially women in Africa, are very willing to forgo specific expected return to keep income hidden instead of sharing it with her husband or larger family. This demonstrates that the social pressure to share income may be a big hinderance of growth and development as investments aren't maximized through the attempts to hide income.

Describe what property rights are

Property rights are an owner's right to use a good or asset for consumption or income generation, as well as having the right to transfer it to another party

Give examples of social networks and group identity networks

Social networks = friends, neighbors, colleagues, anyone you interact with. Friends on a social media platform like Facebook, professional contacts on LinkedIn, family members, fellow migrants group identity = being a proud member of a sports fan club, identifying as part of a specific ethnic or cultural community, or aligning with a particular political ideology

How do social networks overlap with and differ from group identities?

Social networks and group identities can overlap in some situations, particularly when individuals from the same group form social connections. However, they differ in their formation, nature, purpose, and flexibility. Social networks are more dynamic and often formed by personal choice and shared interests, while group identities are often inherent and enduring, shaping an individual's cultural and social identity from birth.

Describe the context of the Abraham paper, what the study revolved around.

The paper investigates the relationship between investments in telecommunications and economic development, particularly focusing on the impact of mobile phones in rural and underdeveloped fishing markets in Southern India. The study is set in the context of developing countries where large populations live in rural areas, often subject to inefficient market conditions

Describe why diversity might be beneficial in the production of a private good but not the individual consumption of a public good.

The skills of individuals of different ethnic groups are complementary in the production process for a private good, as diversity leads to increased productivity. However, individual utility depends on the consumption of a shared public good, and different ethnic groups with different preferences and measures of utility want to produce differing public goods, meaning increased diversity lowers utility from public good consumption

Describe the findings of the Abraham paper and the overall takeaway.

The study demonstrates the transformative role of information and communication technologies like mobile phones, in correcting large-scale information asymmetries and inefficiencies, particularly in developing countries' rural and unorganized markets. The case of the fishing community in Kerala illustrates how mobile phones can significantly enhance market efficiency, create more fair profits, improve productivity, and enhance the well-being of individuals in low-income settings. This underscores the potential of technology as a tool for economic development and poverty alleviation

Describe the findings of the Khanna paper and the overall takeaway.

The study focuses on understanding the general equilibrium effects in both the labor market and the education sector. The findings of the study indicate that the earnings returns to a year of education are 13.4%. However, general equilibrium labor market effects substantially depress these returns by 6.6 percentage points. These effects have significant distributional consequences across cohorts and skill groups, with unskilled workers benefitting and skilled workers being worse off due to the policy. This shows that while large-scale investments in education DO significantly increase individual educational attainment and potential earnings, the overall impact on the labor market is more complex, as there are distributional impacts on different groups.

Describe the findings of the Duflo paper and the overall takeaway.

The study found that pensions received by women had a notable impact on the weight for height and height for age of girls, but had little effect on boys. This difference was not observed for pensions received by men. These findings suggest that the effectiveness of public transfer programs may depend on the gender of the recipient​. The findings underscore that when designing and implementing such programs, policymakers need to consider the intrahousehold dynamics and the potential differential impacts based on the gender of the recipients.

Describe the unitary model of households

The unitary model of households assumes that within a household, all members act as a single, unified entity with shared preferences and goals. It views the household as a single producer and consumer in the economy. In other words, the unitary model assumes that households make decisions collectively, and there is no internal conflict or individual decision-making within the household.

Give an example when social networks and group identity do not overlap.

There are many different cultural and religious groups in India, yet in a huge city like Dehli, urban neighborhoods are large, diverse, and not segregated by caste, religion nor ethnicity. Social networks can be created in neighborhoods of Dheli even if they are not close to sharing a group identity.

Describe how group identity can cause constraints on the maximization of utility

There are norms, rules and other social constraints. Similarly, sometimes group choice over individual choices can constrain individual utility.

What is the purpose of microfinance?

To empower individuals who do not have access to traditional banking services, or substantial collateral, to improve their financial well-being and lift themselves out of poverty.

Why might ethnic fractionalization not cause civil war

Too many ethnic groups means there are too many coordination problems, any kind of uprising or war would be too fractionalized

Describe the collective household model

Unlike the unitary model, which assumes that all members of a household have the same preferences and make collective decisions, the collective household model recognizes that individuals within a household may have different preferences, bargaining power, and roles in decision-making. This model provides a more nuanced and realistic representation of how resources are allocated.

Describe what group identity is

common traits shared by people, like ethnicity, language, culture, religion, nationality, with in- groups and out groups. Typically defined in opposition of another group.

In the collective household model, ___________ utility is maximized

joint

Describe the utility function for individuals

max utility = (utility)/(constraints)

Describe what networks are

networks are based on strong social ties that support the sanctions needed to maintain cooperative behavior. Typically are sedentary and last for generations. Members sacrifice immediate individual gain when the threats of social sanctions are severe enough on the group.

The goal of banking is to....

relax monetary constraints including allowing liquidity, security, and loans.