GLOBAL ECONOMIC RELATIONS Course number DEVM 566, May 14 – May 25, 2012

1. GLOBAL ECONOMIC RELATIONSCourse number DEVM 566, May 14 – May 25, 2012 James Raymond Vreeland School of Foreign Service & The Department of Government Georgetown University

2. Who is this guy? WEGG

3. What do professors really do? • Teaching • Service • Research

4. 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

5. Pedagogy • Substance • Analytical tools • Teaching to fish

6. 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?

7. Service • (Meetings, committees) • Advising students • Service to the profession • Conferences • Reviewing research • Giving talks…

8. 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

9. A current research project: Global horse trading: IMF loans for votes in the United Nations Security Council

10. Who are you? • Dream concert • Favorite city • Secret power • What do you expect from this course?

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

12. The assignment and grading • Open to suggestions! • (on the assignment, not your grades)

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

14. 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?

15. 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…

16. Education: • 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).

17. Time 1 Time 2 • Hostages would like to commit to not pressing charges. Promise Free Testify H K H (T,-10 years) Not Kill Not (–,1) (–, 1) (0,2)

18. 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).

19. Time 1 Time 2 Offer Invest Expropriate G F G (T,0) Not Not Not (0,0) (0,S) (1,1) Suppose that T>1>S>0

20. 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?

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

22. More examples for Time-inconsistent preference problem…

23. Another government example: • Government’s and monetary policy • PBC? • “Political-business cycle” • Problem before elections?

26. Solution? Independent Central Banks

27. 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.

28. 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.

29. Other commitment mechanisms? Domestic and international Institutions???

30. What is an institution?

31. 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.

32. Themes • Trade • Finance • Development

33. International Institutions • The World Trade Organizations (WTO/OMC) • The International Monetary Fund (IMF/FMI) • The World Bank

34. Domestic Institutions • Democracy vs. Dictatorship • Also: • Legislatures & political parties • Veto players • Federalism • Central banks • Exchange rate regime

35. 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

36. Rest of the course:Understand international cooperation • Interests/Incentives • Shaped by Institutions • International • WTO • IMF • World Bank • United Nations • Domestic • democracy • dictatorship

37. Break?

38. Thank youWE ARE GLOBAL GEORGETOWN!