GLOBAL ECONOMIC RELATIONS Course 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: Google: Google scholar: – 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 ty/jrv24/Vreeland_UNSAM.html

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

The assignment & credibility

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?

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. H Promise Not K Free Kill H Testify Not (–,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).

G Offer Not F Invest Not G Expropriate Not (0,0)(0,S)(1,1) (T,0) Time 1Time 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

More examples for Time-inconsistent preference problem…

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

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 Ulysses and the Sirens: Studies in Rationality and Irrationality. New York: Cambridge University Press. Elster, Jon 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 you WE ARE GLOBAL GEORGETOWN!