GLOBAL ECONOMIC RELATIONSCourse number DEVM 566, May 14 – May 25, 2012

James Raymond Vreeland

School of Foreign Service &

The Department of Government

Georgetown University

Who is this guy?

WEGG

What do professors really do?

• Teaching

• Service

• Research

My classes

• International Political Economy– Economics: distribution of scarce resources– Politics: the role of the state in such distribution– International: how the flows of such resources across

borders plays a role• Flows: goods & service (trade), money (capital mobility), people

(immigration), pollutants (the environment), violence (terrorism)

• International Organizations– The ways international institutions impact these flows

• The IMF– Specific financial flows

Pedagogy

• Substance

• Analytical tools

• Teaching to fish

Technology in the classroom

• Professor 2.0 – bring your laptops to class

• Syllabus: http://www9.georgetown.edu/faculty/jrv24/Vreeland_UNSAM.html

• Google: http://www.google.com/search?q=james+vreeland&rls=com.microsoft:en-us&ie=UTF-8&oe=UTF-8&startIndex=&startPage=1

• Google scholar: – http://scholar.google.com/scholar?q=james%20vreeland&rls=com.microsoft:en-us&oe=UTF-8&startIndex=&startPage=1&um=1&ie=UTF-8&sa=N&hl=en&tab=ws

• Wikipedia?

Service

• (Meetings, committees)

• Advising students

• Service to the profession

– Conferences

– Reviewing research

– Giving talks…

Research

• Informs what I teach

• Keeps me on the cutting edge

• Signals to the world Georgetown faculty strength– Signal attracts great students (peers)– Signals employers the university’s caliber

A current research project:

Global horse trading:

IMF loans for votes

in the United Nations Security Council

Who are you?

• Dream concert

• Favorite city

• Secret power

• What do you expect from this course?

The Syllabus

http://www9.georgetown.edu/faculty/jrv24/

Vreeland_UNSAM.html

The assignment and grading

• Open to suggestions!– (on the assignment, not your grades)

The assignment & credibility

http://www.youtube.com/watch?v=60Z61i-_XWU&feature=related

The generic problem of time-inconsistent preferences:

Individual’s preferences over time:

• Time 1: U(A)>U(B)

• Time 2: U(B)>U(A)

• Anticipating the change in preferences, can the individual commit @ Time 1 to choosing State A @ Time 2?

Examples:

• Classic: Ulysses & the Sirens

• Time 1=Before listening to the Sirens.

• Time 2=While listening to the Sirens.

• State A=Sailing home…

• State B=Belly of the beast…

• Principal=student.

• Delegates to agent=professor.

• Time 1: Beginning of the semester.

• Time 2: Any Thursday night.

• State A: State of knowledge.

• State B: State of… (Tombs).

Education:

• Hostages would like to commit to not pressing charges.

HPromise

Not

KFree

Kill

HTestify

Not

(–,1) (–, 1) (0,2)

(T,-10 years)

Time 1 Time 2

Under democracy:

• Time 1: Voter elects a government that offers incentives to firms to invest.

• Time 2: Voter elects a government to tax the firm (expropriate the benefits from investment).

GOffer

Not

FInvest

Not

GExpropriate

Not

(0,0) (0,S) (1,1)

(T,0)

Time 1 Time 2

Suppose that T>1>S>0

Note that this can happen under dictatorship too.

• Market-friendly dictator replaced by socialist

• Or the old dictatorship can change its mind!

• What if the dictatorship will be around a long time?

• REPUTATION!

• Is dictatorship more or less fickle than democracy?

• Are dictators around a long time?

Hazard Rate over Time for Democracies (Solid Line) & Dictatorships (Dotted Line) – Time in years

2015105

0.625

0.5

0.375

0.25

Time (years)

Hazard Rate

Time (years)

Hazard Rate

More examples for

Time-inconsistent preference problem…

Another government example:

• Government’s and monetary policy

• PBC?– “Political-business cycle”

• Problem before elections?

1956

1960

19641972

1976

1980

1984

1988

1992

1996

20002004

1952

1968

2008

4045

5055

6065

Incu

mb

en

t sh

are

of t

wo

-pa

rty

vote

(%

)

-2 -1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Real income growth and military fatalities combined

Combination of real growth and fatalities weights each variable by its estimated coefficient.Estimated fatalities effects: -0.7% 2008, -7.6% 1968, -9.9% 1952; negligible in 1964, 1976, 2004.Source: www.douglas-hibbs.com

Bread and Peace Voting in US Presidential Elections 1952-2008

Solution?

Independent Central Banks

Marriage:• Not needed if there is “true love” or “happily ever after.”

• Needed because we anticipate the possibility of “Time 2.”

• Time 2: U(B)>U(A)

• State A=Together

• State B=Sirens, Toads, etc…

• “Richer,” “health,” & “better” added for symmetry.

• “Poorer,” “sicker,” “worse” are the kickers.

Suggested readings

• Elster, Jon. 1990. Ulysses and the Sirens: Studies in Rationality and Irrationality. New York: Cambridge University Press.

• Elster, Jon. 2000. Ulysses Unbound. New York: Cambridge University Press.

Other commitment mechanisms?

Domestic and international

Institutions???

What is an institution?

The course take-away:

• What is an institution?– A set of rules (structures/constraints/mechanisms)

that govern the behavior of a given set of actors in a given context.

– An equilibrium?

• Institutions matter…• The ways countries interact in the international arena

partly depends on their institutional context.

Themes

• Trade

• Finance

• Development

International Institutions

• The World Trade Organizations (WTO/OMC)

• The International Monetary Fund (IMF/FMI)

• The World Bank

Domestic Institutions

• Democracy vs. Dictatorship

• Also: – Legislatures & political parties– Veto players– Federalism– Central banks– Exchange rate regime

Take-away points for today:

• Time-inconsistent preference / commitment problems

• Survival of leaders under democracy and dictatorship

• Economic performance and reelection

• What it means to EXPLAIN– The "bridge" - proper nouns/dates & variables

• Malapportionment

• What is an institution? (a set of rules / an equilibrium)– Reinforced through material self-interest of all relevant actors

Rest of the course:Understand international cooperation

– Interests/Incentives– Shaped by Institutions

• International– WTO– IMF – World Bank– United Nations

• Domestic– democracy– dictatorship

Break?

Thank youWE ARE GLOBAL GEORGETOWN!