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Terms in this set (37)
Costs of monitoring managers and other employees and of designing and implementing schemes to ensure compliance or provide incentives to follow the wishes of the employer.
A situation in which one party to a potential transaction (often a buyer, seller, lender, or borrower) has more information than another party.
A concerted, economy-wide, and typically public policy-led effort to initiate or accelerate economic development across a broad spectrum of new industries and skills.
The one limiting factor that if relaxed would be the item that accelerates growth (or that allows a larger amount of some other targeted outcome)
An action taken by one firm, worker, or organization that increases the incentives for other agents to take similar actions. Complementarities often involve investments whose return depends on other in- vestments being made by other agents
The opposite of a complementarity; an action taken by one agent that decreases the incentives for other agents to take similar actions.
A situation in which the inability of agents to coordinate their behavior (choices) leads to an outcome (equilibrium) that leaves all agents worse off than in an alternative situation that is also an equilibrium.
A government policy that can move the economy to a preferred equilibrium or even to a higher permanent rate of growth, which can then be self-sustaining so that the policy need no longer be en- forced because the better equilibrium will then prevail without further intervention.
An economic actor—usually a firm, worker, consumer, or government official—that chooses actions so as to maximize an objective; often referred to as "agents."
A decision tree framework for identifying a country's most binding constraints on economic growth.
The spillover of information—such as knowledge of a production process—from one agent to another, without intermediation of a market transaction; reflects the public good characteristic of information (and susceptibility to free riding)—it is neither fully excludable from other uses, nor nonrival (one agent's use of information does not prevent others from using it).
Connections between firms based on sales. A backward linkage is one in which a firm buys a good from another firm to use as an input; a forward linkage is one in which a firm sells to another firm. Such linkages are especially significant for industrialization strategy when one or more of the industries (product areas) involved have increasing returns to scale that a larger mar- ket takes advantage of.
A condition in which an economy be- gins development to reach middle-income status but is chronically unable to progress to high-income status. Often related to low capacity for original innovation or for absorption of advanced technology, and may be com- pounded by high inequality.
A condition in which more than one equilibrium exists. These equilibria sometimes may be ranked, in the sense that one is preferred over another, but the unaided market will not move the economy to the preferred outcome.
An economic model in which production functions exhibit strong complementarities among inputs and which has broader implications for impediments to achieving economic development.
O-ring production function
A production function with strong complementarities among inputs, based on the products (i.e., multiplying) of the input qualities.
A situation in which one or more persons may be made better off without making anyone worse off.
A positive or negative spillover effect on an agent's costs or revenues.
A bad equilibrium for a family, community, or nation, involving a vicious circle in which poverty and underdevelopment lead to more poverty and underdevelopment, often from one generation to the next.
A situation in which all parties would be better off cooperating than competing, but once cooperation has been achieved, each party would gain the most by cheating, provided that others stick to cooperative agreements—thus causing any agreement to unravel
The profitability of an investment in which both costs and benefits are accounted for from the perspective of the society as a whole.
A positive or negative spillover effect on a firm's production function through some means other than market exchange.
An economic situation characterized by persistent low levels of living in conjunction with absolute poverty, low income per capita, low rates of economic growth, low consumption levels, poor health services, high death rates, high birth rates, dependence on foreign economies, and limited freedom to choose among activities that satisfy human wants.
A situation in which all parties would be better off cooperating than competing but lack information about how to do so. If cooperation can be achieved, there is no subsequent incentive to defect or cheat.
Can you think of additional examples of complementarities from everyday life?
some of the additional examples of complementarities in our daily life are:
- increase in economic growth, thereby achieviging full employment level
- increase in the use of diesel cars causing an increase in diesel stations
- increasing borrowings by the individual households or firms causing an increase in the internet returns to bank
Does the S-shaped curve shed any light on them?
the basic idea is that the benefits enjoyed by the economic agents depend on the fact that how many other agents are going to follow the initiative taken by one of them. the curve first increases at an increasing rate and then at a decreasing rate. this is because initially there is an incentive for the economic agents to wait for more agents to join their move
2. What role do you think international trade and foreign investment can play in solving some of the problems identified in the big push model? In the O-ring model? What limitations to your arguments can you think of?
the o-ring theory is based on the premise that the production process should be carried out with the people of same level of skills. This means that high skilled labor should work with another skilled labor and not with a low skilled labor. this is because the group of high skilled labor will take less time to carry out the production process.
- thus, foreign investments and foreign trade are going to be helpful for a nation's development only if there were enough high skilled people to understand the investments terms and conditions else the economy would be caught in product quality trap
3. The word trap suggests that there may be a way to escape. Do you think developing countries can escape all of the traps described in this chapter?
1. poverty trap
2. debt trap
3. middle income trap
How could the developed world be of assistance in these cases?
1. steps are taken to identify new markets for exports, increasing the efficiency of production process
2. the government should keep a financial backup with it every time by increasing savings
3. the poverty trap can be handled by providing health and education services to the poorest of poor
4. Why might high levels of inequality lead to lower rates of growth and development? Why might it be difficult to get out of this kind of trap?
inequality of income is a serious trap in which many of the developing nations have already been caught. there is much difference in the income levels of the citizens of the same country
1. the economic policies would favor only high income group and less favorable for the low-income group
2. the inequality trap is also expected to establish weak political and social institutions wherein welfare objective is seen last in the list
5. Why is the government sometimes a part of the problem of coordination failure rather than the solution? Does this make the problem hopeless? What could be done in this case?
1. one of the reasons is government officials/politician are highly corrupted and think of their own personal benefit rather against economic welfare
2.the government has done under pricing of the factors of production during the industrialization process bc of which the returns to these factors have been considerably lower than that they capable of
3. the industrialization process and how the low prices for domestic agriculture produce for imported goods is responsible for coordination failure
4. there is also price discrimination seen in the commodity market
5. sometimes the government opts for foreign borrowing to fill its fiscal deficit but at the same time is inefficient in devising ways to promote export of goods or search new markets for export promotion that could arrange for money to pay back the interest on money borrowed from international market
6. One of the characteristics of some developing economies is the relatively low level of trust of people outside one's extended family. How might the models explored in this chapter shed light on this problem?
one of the characteristics of some developing economies is the low level of trust of people outside one's extended family.
7. Can you think of an example of O-ring production from everyday life? Do you think your example is a good metaphor for development problems?
O-ring theory of production stresses upon the fact that efficient and effective production can take place only with the choice of best workers. inefficient worker cannot be paired with efficient worker because it is a mismatch and will only lead to wastage of time and money
8. Modern economic models sometimes require strong assumptions. What do you think are some of the trade-offs between a more rigorous, logically cohesive model with strong assumptions but clear inferences and a description of problems followed by a verbal discussion of possible implications? Do you think the two approaches can be used together to inform each other?
there is a line of difference between assumptions made in models to explain the reasons for development or underdevelopment and the real causes underlying them respectively
- the coordination failure theory is baed on the assumption that if the state does not play its role effectively then the economic agents will always take a decision that will only make them as better off and others wose off.
9. As you read later chapters, think about whether the models described in this chapter are useful in shedding additional light on the nature of the problems considered. Some of the later problems you might consider are child labor, poor health and nutrition among the poor, high fertility, environmental degradation, availability of credit for the poor, urbanization, protectionism in international trade by developed and developing countries, reform of government, and land reform.
1. adaptation of modern technology to move from a traditional to modern sector is tough until a big push in the form of huge business investment is given to the economy
2. the economy is underdeveloped because of coordination failure between the economic agents
3. the production of a quality-based commodity requires the contribution of the skilled labor
11. What kinds of market failures are present in the economic self-discovery framework, and how may they be overcome?
- international trade theory predicts that a country can always benefit from trade if it produces the products in which it has comparative advantage
- "self discovery" is assumed that the products in questions have already been discovered and what remains to be discovered in which these products is relatively good at making by the local economy. an inherited market failure in this self discovery framework is a mere knowledge of the products in which it has a comparative advantage does not mean that the country should start producing it
- too much diversification after the country discovers its specialization. there may be an extended period in which the entry into the new activity is limited
- in the presence of above-mentioned market failure, government policy should counteract distortions by encouraging broad investments in the modern sector in the discovery phase in certain cases should work to rationalize production afterward, encouraging movement out of higher cost activities to lower cost activities and pairing down the industries with the ones that have the potential for the economy
THIS SET IS OFTEN IN FOLDERS WITH...
Chapter 1: Economic Development
Chapter 5: Poverty; Inequality; and Development
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