Topics in Applied Economics I:

Explaining Economic Policy

2016-2017- Academic Year

Master of Research in Economics, Finance and Management

1. Description of the subject

Topics in Applied Economics I Code: 32086

Total credits: 3 ECTS Workload: 75 hours
Term: 2nd
Type of subject: Elective
Department of Economics and Business
Teaching team: Giacomo Ponzetto
 Topics in Applied Economics I

2. Teaching guide

Introduction
In the last decades, a thriving research program in political economics has shown that the
positive understanding of economic policy, and of economic phenomena more broadly,
requires the careful consideration of the political process through which policies are
determined and of the political institution under which markets operate.

Contents
The objective of this course is to introduce the students to the tools and models that
underpin active research in political economy. While the methodological focus of the class
is theoretical, our analysis is motivated by empirical evidence and we will cover empirical
as well as theoretical papers. Furthermore, the modeling tools presented in this course are
an essential prerequisite to understand recent empirical research in the area.

Teaching methodology
The lectures are based on the following textbook, which is required reading:
Persson, Torsten, and Guido Tabellini. 2000. Political Economics: Explaining Economic
Policy. Cambridge, MA: MIT Press.
Other recommended reference books are the following:
Besley, Timothy. 2006. Principled Agents? The Political Economy of Good Government.
Oxford: Oxford University Press.
Grossman, Gene M., and Elhanan Helpman. 2001. Special Interest Politics. Cambridge,
MA: MIT Press.
In addition to the textbook, we will cover recently published articles. A detailed list of the
readings for each topic will be given in class. A preliminary list is provided in section 3.
Lecture notes will be made available. The seminal papers that underlie the textbook
analysis are not explicitly included in the reading list, but you are naturally encouraged to
refer to the primary sources for an in-depth analysis of any topic

Assessment and Grading System

The assignments for the course are intended to foster engagement with the current
research frontier and to stimulate creative thinking about the students own research
projects. There will be no problem sets nor a final exam. Instead, there are two
requirements:
1) At the beginning of each week, each student must send the instructor an e-mail with
personal thoughts, criticisms, and ways forward on the topics to be covered in the
following week. The email should be at least one page but no more than two. Advance
reading the materials will help frame your questions and organize ideas. However, you
should never summarize the readings, but rather propose new directions for future
research.
2) One week after the last class, each student must submit a final project. The project
should be around 6 and no more than 10 pages long and can be any of the following:
a. The proposal for an original paper.
b. A sufficiently challenging extension of an existing model or replication of an
existing empirical analysis, which might become the basis of a paper.
c. A critical survey of the literature on a specific topic that was not extensively
covered in class.
d. Referee reports on two important articles published in the last few years.

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 Topics in Applied Economics I

The weekly assignments (1) and active participation to classroom discussion will count for
30% of the final grade, and the final project (2) will count for the remaining 70%. Grading
will take into account that projects belonging to types (a) and (b) are more challenging
than those of types (c) and (d).

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3. Programme of activities

Description of the subject: Topics in Applied Economics II

Total credits: 3 ECTS Total number of hours: 20
Estimated time spent on the subject: 75
- In the classroom: 20
- Outside the classroom: 55
The following outline sketches the topics covered in the course. Required readings are marked
by a star. The reading list is subject to marginal changes before and during the class.

Majority Rule: The Median Voter

* Persson and Tabellini 2.1-2.2, 3.1-3.3, and 6.1.
Gerber, Elisabeth R., and Jeffrey B. Lewis. 2004. Beyond the Median: Voter Preferences,
District Heterogeneity, and Political Representation, Journal of Political Economy 112 (6):
1364-1383.

Probabilistic Voting
* Persson and Tabellini 2.3, 3.4, 7.1, and 7.4.
Strmberg, David. 2008. How the Electoral College Influences Campaigns and Policy: The
Probability of Being Florida, American Economic Review 98 (3): 769-807.
Larcinese, Valentino, James M. Snyder, and Cecilia Testa. 2013. Testing Models of
Distributive Politics Using Exit Polls to Measure Voter Preferences and
Partisanship, British Journal of Political Science 43 (4): 845-875.

Voter Rationality and Incentives to Vote

* Grossman, Gene M., and Elhanan Helpman. 2001. Special Interest Politics. Cambridge, MA:
MIT Press. 3.1.
Coate, Stephen, and Michael Conlin. 2004. A Group Rule-Utilitarian Approach to Voter
Turnout: Theory and Evidence, American Economic Review 94 (5): 1476-1504.
Feddersen, Timothy, and Alvaro Sandroni. 2006. A Theory of Participation in
Elections, American Economic Review 96 (4): 1271-1282.
Coate, Stephen, Michael Conlin, and Andrea Moro. 2008. The Performance of Pivotal-Voter
Models in Small-Scale Elections: Evidence from Texas Liquor Referenda, Journal of Public
Economics 92 (3-4): 582-596.

Heterogeneous Voter Information

* Strmberg, David. 2004. Radio's Impact on Public Spending, Quarterly Journal of
Economics 119 (1): 189-221.
* Glaeser, Edward L., Jesse M. Shapiro, and Giacomo A. M. Ponzetto. 2005. Strategic
Extremism: Why Republicans and Democrats Divide on Religious Values, Quarterly Journal
of Economics 120 (4): 1283-1330.
* Ponzetto, Giacomo A. M. 2011. Heteregeneous Information and Trade Policy. CEPR
Discussion Paper No. 8726.

Lobbying
* Persson and Tabellini (2000) 3.5, 7.3 and 7.5.1.
* Grossman, Gene M., and Elhanan Helpman. 2001. Special Interest Politics. Cambridge, MA:
MIT Press.
 Topics in Applied Economics II

Levitt, Steven D. 1994. Using Repeat Challengers to Estimate the Effect of Campaign
Spending on Election Outcomes in the U.S. House, Journal of Political Economy 102 (4):
777-798.
Ansolabehere, Stephen, John M. de Figueiredo, and James M. Snyder. 2003. Why Is There So
Little Money in U.S. Politics? Journal of Economic Perspectives 17 (1): 105-130.
Mian, Atif, Amir Sufi, and Francesco Trebbi. 2010. The Political Economy of the US
Mortgage Default Crisis, American Economic Review 100 (5): 1967-98.

Policy-Motivated Politicians: Partisanship and Citizen Candidates

* Persson and Tabellini (2000) 5.1-5.3.
* Besley, Timothy, and Stephen Coate. 1997. An Economic Model of Representative
Democracy, Quarterly Journal of Economics 112 (1): 85-114

Rent-Seeking Politicians: Political Agency

* Persson and Tabellini (2000) 4.1-4.5.
* Besley, Timothy. 2006. Principled Agents? The Political Economy of Good Government.
Oxford: Oxford University Press.
* Besley, Timothy, and Robin Burgess. 2002. The Political Economy of Government
Responsiveness: Theory and Evidence from India, Quarterly Journal of Economics 117 (4):
1415-1451.
* Snyder, James M. and David Strmberg. 2010. Press Coverage and Political Accountability,
Journal of Political Economy 118 (2): 355-408.
* Eisensee, Thomas, and David Strmberg. 2007. News Droughts, News Floods and U.S.
Disaster Relief, Quarterly Journal of Economics 122 (2): 693-728.

Voter Information and Political Decentralization

* Besley, Timothy, and Anne Case. 1995. Incumbent Behavior: Vote-Seeking, Tax-Setting,
and Yardstick Competition. American Economic Review 85 (1): 25-45.
* Boffa, Federico, Amedeo Piolatto, and Giacomo A. M. Ponzetto. 2016. Political
Centralization and Government Accountability. Quarterly Journal of Economics 131 (1):
381-422.

Legislatures and Electoral Rules

* Persson and Tabellini (2000) 5.4, 7.2, 7.5.2-7.5.3, Ch. 8 and 10.
* Persson, Torsten, and Guido Tabellini. 2004. Constitutions and Economic Policy, Journal
of Economic Perspectives 18 (1): 75-98.
* Knight, Brian. 2005. Estimating the Value of Proposal Power, American Economic Review
95 (5): 1639-1652.

Macroeconomic Dynamics and the Commitment Problem

* Persson and Tabellini (2000) Ch. 11-13, 15-16 and 1 7.2.