Political Economy

Familiarize yourself with arguments for and against progressive income taxes.

Explain the causes of monopolies.

Describe the incentives for companies to compete with each other or collude with each other

Know how regulations affect market outcomes, and why these effects may be desirable or undesirable

Explain the differences between capture theory and public-interest theory.

-Know and be able to explain the 10 planks of the Communist Manifesto

Summarize the key ideological positions in economic thought from mercantilism to the present. Know the general time-line and some of the key players

POLITICAL ECONOMY1 Lobbying models and trade policies
Bombardini (2008) sets up a theoretical model to investigate why some industries
receive more protection than others. More specifically, she observes that
sectors with higher firm heterogeneity tend to be more protected from foreign
competition. The framework developed shows that the dispersion of firms’ size
distribution is positively correlated with the degree of protection received by the
sector. To test this prediction, she performs two distinguished analysis using
firm-level contributions data.
(a) In this context, what is the “Participation share”? What is its role in
equilibrium? How is it theoretically determined? And how is it empirically
quantified?
(b) What is the relation between the participation share and the size distribution?
(c) In the empirical section, she performs two distinguished analysis: a reducedform
analysis and a structural analysis. Can you briefly describe the differences
between the two approaches as set up by Bombardini (2008)?
(d) Figure 1.1 reports the results to the reduced form analysis. Consider
specification (GB): what is the difference between coefficients ?1 and ?2?
(e) How can we conclude, from figures 1.2 and 1.3, that participation is positively
correlated with size?
1
Figure 1.1: Reduced form analysis
Figure 1.2: Structural analysis
2
Figure 1.3: Contributions as a function of firm size