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MIDTERM REVIEW

This article provides a review of game theory and its application in issues of political and economic development. Topics covered include dominant strategies, equilibrium strategies, Nash Equilibrium, cooperation, coordination, credible commitment games, asymmetric information, infinitely repeated games, and solving political holdup problems. The article also explores the violence trap, explaining the development puzzle, and the role of institutions and democracy in development.

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MIDTERM REVIEW

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  1. MIDTERM REVIEW POLISCI 247A/347AECON 162

  2. Agenda of the Day • Midterm Review • Any questions?

  3. Purpose of Game Theory • Provides a frameworkwhich guides how we think about issues of political and economic development • Often favors parsimony over complexity • Best Response: what the is the optimal way for me to behave given what I know/believe other actors will do? • Pure strategies vs. mixed strategies • Dominant strategies • Equilibrium strategies • Nash Equilibrium: there can be multiple • Midterm/pset hint: before starting the math, make sure you get understand the intuition!

  4. Games to Know • Cooperation (ex: Prisoner’s Dilemma) • Coordination (ex: Stag Hunt & Battle of the Sexes) • Credible commitment games (ex: Peasant-Dictator Game, Expropriation game, and Economic Backwardness Model) • Asymmetric Information (ex: bargaining game) • Infinitely repeated games • Solving political holdup problems • Democratization Game (intuition)

  5. Violence Trap • State: monopoly of legitimate violence over a given territory (Weberian definition) • Politicaldevelopment: market-supporting infrastructure • Thucydides: survival: security  money  security… • Natural state: the outcome of violence constraints • Rent Creation • Proportionality Principle • Violence Trap • Lack of property rights and rule of law • Security concerns • Limited capital injection • Takeaway: most theories of economic development don’t account for violence. First problem that needs to be solved

  6. Explaining the Development Puzzle • Changes tend to be non-incremental • Focus on long term trajectories rather than short-term changes • Four Explanations • Institutions • Geography • Culture • Luck • Takeaway: the explanations are not mutually exclusive, but the greatest focus has been on institutions

  7. Institutions • Horizontal Institutions • Citizens want to protect themselves from cheating by others like them • Vertical institutions • Both citizens and the state want to insulate themselves from the other group (ex: expropriation) • Can institutional change be forced? • Acemoglu et. al argument about Napoleon and Germany

  8. Democracy • Modernization theory: economic growth causes democratization • Prezworksi calls this an “endogenous” theory • Ex: as a country increases its GDP per capita, it will democratize • Democratic consolidation theory: economic growth causes strengthening of democracy, but not necessarily democracy itself • Prezworksi calls this an “exogenous” theory. • As political voice is expanded  redistribution • Revolution as a catalyst for democracy • Overcoming the collective action problem • Takeaway: correlation is not causation. The debate in the literature is about causal relationships

  9. No section next week!!!Office Hours as alwaysGood luck!

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