INTERNATIONAL POLITICAL ECONOMY (Course number GOVT 261, Spring 2015) Class day & time: Tuesday & Thursday, 11am-12:15pm Instructor: James Raymond Vreeland, Professor 2.0JamesRaymondVreeland WE ARE GLOBAL GEORGETOWN! 1

Who is this guy? WEGG 2

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 3

Striving for a global impact Places I have taught: Places I have had a research position: Places I have presented my research: 4

Cultural exchanges Co-authors 5

You 6

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So much more to know… International students? International experiences? Personal stories Greatness in this room! 9

What are YOUR responsibilities in this class? Go to the syllabus!

Pedagogy Substance Analytical tools Teaching to fish 11

Substance & Analytical Tools Graphs Indifference curves Statistical tables 12

Technology in the classroom Professor 2.0 – bring your laptops to class Syllabus: Google: Google scholar: – Wikipedia? 13

What is this class about? 14

IPE conomyoliticalnternational 15

I.P.E. International Political Economy –Economics: distribution of scarce resources –Politics: the role of the state in such distribution –International: flows of such resources across borders 16

International Flows Goods & Services (trade) Finance People Pollutants Others?... –Violence/terrorism? 17

What to expect WE ARE GEORGETOWN! You are Georgetown! I am Georgetown! What does it mean to you? Culture of Excellence Respect –For other cultures, for each other High standards –On time, attendance, do the reading, no cheating RANDOM SELECTOR – COLD CALLING 18

Requirements Exams What’s the point? –Analytical tool time! 19

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 Time 1 to choosing State Time 2? 20

Classic Example: Ulysses & the Sirens 21

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: 22

Exams Designed to help you to do your work Emphasizes a key point of the class: The Importance of Incentives Exams will be straightforward E.g., –What is the purpose of the exam? –Answer? –To solve your “commitment problem” –Or to solve your “time-inconsistent preference problem” 23

Grading Mid-term & (non-cumulative) Final – you decide the weight (25% – 75%) Department website: “Grades in the Department of Government reflect high standards and university norms… the expectation is that no more than 50 percent of grades will be A-minus or higher.” Standards of excellence 24

Substance… 25

So what, exactly, do we want the state to do? The state versus the market… A stylized history of the debate… With a pugilist analogy 26

ROUND 1: The market comes out strong with a powerful blow to the body of the state: Adam Smith’s work leading (eventually) to… The fundamental theorems of welfare economics: 1.Competitive allocations are efficient 2.Any efficient allocation (distribution) can be reached from an appropriate distribution of initial endowments There is No role for the state to play in the economy (except perhaps to redistribute initial endowments) 27

ROUND 2: But the state returns a powerful punch to the market: Some traditional market failures: –Monopolies (failure of perfect competition) –Public Goods (efficient price is 0, since these goods are non-rivalrous) –Externalities (consumption by one individual affects the utility of another individual) As the bell rings to end this round, the state has a big role to play in the economy But wait… the market has a major blow in store for the state… 28

ROUND 3: The market returns with – what looks to be – a knock-out blow to the jaw of the state. Stigler: –Why assume that the state will perform any better than the market? –Private individuals are privately motivated –Why assume governments are public spirited?? –Opens the possibility of “rent-seeking” behavior by governments –Corruption –The “principal-agent” problem which we will address soon! For better or worse, we’re stuck with the market. Keep the state out of the economy. 29

ROUND 4: The state is cut & it’s bleeding, but it’s on its feet and it’s on the move. Delivers a monumental blow to the belly of the market. Stiglitz questions the assumptions of the model which undergirds “the market.” –MISSING MARKETS Practical: Futures market. No risk-market for some things (moral hazard) Logic: trade-off between thinness and completeness Normative: we don’t want some markets to exist –IMPERFECT INFORMATION Utility functions are not “well-behaved” 30

The contest is a DRAW… 31

Bottom line There is no assumption that the market or the state will be efficient No monolithic theory of “state” over “market” or vice versa No religion, no ideology Study precise situations –Analyze the trade-offs between –Centralized mechanisms of allocation & –Decentralized mechanisms of allocation 32

Questions, then conclusion 33

Take-aways 1.I. P. E. 2.Time inconsistent preference problem –A.K.A. Commitment problem 3.States vs. Markets –Fundamental theorems of welfare economics –Traditional market failures –Rent-seeking governments –No ideology: No assumption that the market or the state will be efficient 4.Centralized vs. Decentralized Mechanisms of Allocation 5.WE ARE GEORGETOWN! 34

Take-aways 1.I. P. E. 2.Time inconsistent preference problem –A.K.A. Commitment problem 3.States vs. Markets –Fundamental theorems of welfare economics –Traditional market failures –Rent-seeking governments –No ideology: No assumption that the market or the state will be efficient 4.Centralized vs. Decentralized Mechanisms of Allocation 5.WE ARE GEORGETOWN! 35

WE ARE GLOBAL GEORGETOWN! Thank you 36