Discuss some feature of the world that you think is caused by multiple equilibri

Discuss some feature of the world that you think is caused by multiple equilibria (and not by fundamental differences in exogenous characteristics.)
For your final essay, I would like you to write about multiple equilibria. In particular, I would like you to discuss some feature of the world that you think is caused by multiple equilibria (and not by fundamental differences in exogenous characteristics.). These types of issues are equally as important for micro and macro settings, so you should feel free to focus a setting that you care about.[2] You do get credit for coming up with an interesting & unique idea. I would prefer that you not write about years of schooling, healthiness, or corruption.
a. You should start your paper by describing exactly what the phenomenon you are interested in is. Even if you think your theory is more general, you should pick a specific context to discuss. You can describe your theory in math (which is what we did for the theories in class), or just words, but be sure to be clear exactly what the mechanism is that preserves different equilibria.
We also discussed convergence in class. We have seen that, among other things, cross country incomes, human capital, capital per worker, and manufacturing TFP have converged over the last few decades. Why do you think your observed differences will persist (and/or have persisted)?
b. You should then apply your theory to your specific context. Do the mechanisms you propose show up? You don’t have to do your own data collection/analysis (although it is strongly encouraged), but your paper does need to take the real world seriously. I would rather you didn’t try to write about all countries at once – you should really pick a specific place or two. Use specific details about those places to inform your argument.
You can draw from academic papers, policy briefs, newspaper articles, your own experiences, etc. Be sure think about causality – just because you see a relationship in the data, it doesn’t mean that it represents a causal effect (I’m not saying that you need an experiment, just that you need to be honest about what your data shows). If you want, you can describe why the different equilibria emerged – why do people behave differently? Hysteresis? Luck? Something else?
c. As we saw when we discussed the hunger poverty trap, mechanisms existing does not mean that there will be multiple equilibria (so: hunger probably does cause people to be less productive, and poorer people do eat less, but neither effect is large enough to create an S-shaped curve for the relationship between hunger today and hunger tomorrow). Given your answers in (b), do you think multiple equilibria is an explanation for the phenomena you describe in (a)? It is totally fine if the answer is “no” – please do not start a new topic if you discover that your theory is wrong. As long as your theory is plausible and you do good empirical work, I don’t care about the theory being correct or not. However, you should not say that your theory is correct if the evidence isn’t there.
1) The idea of multiple equilbria is that it is something self-reinforcing. This implies that if the equilbria switched from one to the other, it would then persist. So to give you an example, driving on the left vs driving on the right is like this. There is no fundamental reason that we pick one vs the other. It would be expensive to switch (e.g. changing the side of the car where the driver is, street signs, norms, etc.) but then once the switch was made it would persist. There are other differences in behavior that are not like this. For instance, in NYC we wear sweaters and hats in December. In Australia they go to the beach. But switching wouldn’t persist – if people in Australia started wearing heavy coats in December, they would get hot and take them off.
So what I’m looking for is differences in the world where you explain why the equilibria are self reinforcing (and not driven by external forces, like the weather). You do not have to explain to me what multiple equilibria are, you do not need to spend time talking about the nutrition poverty trap when your topic is something else – I am going to read your essays and that’s stuff that I already know you know. Write about why there might be multiple equilbria in your setting.
2) The paper is long but not extremely long, and I am not expecting you to both develop theory and do your own data analysis with a credible causal approach. You should show off the skills that you’ve learned in class – be it thinking carefully about the theory of multiple equilbria in your setting and what the relevant elasticities are (so for nutrition it would be the relationships hunger -> energy, energy ->income, and income -> hunger), or finding empirical evidence that helps us understand if the forces are large enough to justify multiple equilbria.

Categorized as Economics

Leave a comment

Your email address will not be published. Required fields are marked *