ECON-UA 323: ECONOMIC DEVELOPMENT

Final Paper

Due: December 13, 2025

I want you to write a paper about multiple equilibria.

We see differences in behavior in outcomes and behavior all over the world. Some are economic-

some people are wealthy and others are poor, people and countries are concentrated in different

industries, have access to different transportation methods and networks, have different

education/health/political systems, etc. Others are not economic – some people drive on the left

and others on the right, countries have different types of power outlets, some people say “tu” and

others say “vos” when talking to friends (while others don’t even talk in Spanish!), some people

like spicy food and others don’t. We don’t always have to “see” the path not taken to think about

it: for instance, consider about the qwerty default for keyboards, or that north is “up” in maps.

These differences in behavior could be due to fundamentals (for instance: spicy food is more

useful in hot places), luck (spicy peppers happen to grow in Peru but not Argentina), or they

could be due to self-reinforcing behavior (if kids aren’t brought up earing spicy food, they are

unlikely to eat them as adults). Often the fundamental reason dies out, but the behavior remains,

this is called hysteresis.1

In development, an iconic example of multiple equilibria are poverty traps: Kiminori Matsuyama

has a helpful discussion of poverty traps here, and Mullaianathan and Shafir describe their

behavioral poverty trap here.

With poverty traps, there are “good” and “bad” equilibria. But multiple equilibria are not only

about poverty traps. In class, we have discussed settings with multiple equilibria where the

equilibria aren’t really ranked, for instance the Magrebi and Genoese solutions to the

fundamental problem of exchange. Multiple equilibria are interesting to think and write about,

and I encourage you to not constrain to yourself only to settings where one equilibrium is

obviously worse. Multiple equilibria remain an area of active research, for instance here is a

recent paper by Garg on multiple equilibria and industrial policy, here is a recent paper by

Ferguson and co-authors on multiple equilibria and conflict, here is a classic paper by Card, Mas,

and Rothstein on neighborhood composition, and here is a classic paper by Echenique on

multiple equilibria in operations research.

To be specific: for your final essay, you should find a particular setting where you think multiple

equilibria are important. In particular, I would like you to discuss some feature of the world that

you think is caused by multiple equilibria (and not by fundamental differences in exogenous

characteristics.). These types of issues are equally as important for micro and macro settings, so

1 To give a silly example: short hair is more useful if you are wearing a helmet, which is why in the West it is more

traditional for men to have short hair. The short hair equilibrium persists even though helmet wearing is now fairly

uncommon.

you should feel free to focus a setting that you care about.2 You do get credit for coming up with

an interesting & unique idea. The best essays go beyond material covered in class. To that end, I

would prefer that you not write about schooling, healthiness, or corruption, although if you have

a topic in those areas that you are specifically excited about you should run it by me first (and, in

general Shizhuo and I are happy to discuss your ideas, and you should take advantage of our

regular office hours).

a) You should start your paper by describing exactly the phenomenon you are interested in.

Even if you think your theory is fairly general, you should pick a specific context to

discuss (like a particular place and a particular time). You can describe your theory in

math (which is what we did for the theories in class), or just words, but be sure to be clear

exactly what the mechanism is that preserves different equilibria.

We also discussed convergence in class. Over the course of the semester, we have seen

that cross country incomes, human capital, capital per worker, and manufacturing TFP

have converged over the last few decades. With multiple equilibria, we would not expect

to see convergence. Why do you think your observed differences will persist (and/or have

persisted)?

b) You should then apply your theory to your specific context. Do the mechanisms you

propose show up? You don’t have to do your own data collection/analysis (although it is

strongly encouraged since we didn’t spend all that time doing R for nothing), but your

paper does need to take the real world seriously. You should really pick a specific place

or two, which will help you find the relevant evidence. Use specific details about those

places to inform your argument.

You can draw from academic papers, policy briefs, newspaper articles, your own

experiences, etc. Be sure think about causality – just because you see a relationship in the

data, it doesn’t mean that it represents a causal effect (I’m not saying that you need an

experiment, just that you need to be honest about what your data shows and try to be

thoughtful about the tools discussed in class).

i) If you want, you can describe why the different equilibria emerged – why

do people behave differently? Hysteresis? Luck? Something else? But you

don’t have to talk about the emergence of the multiple equilibria unless

it’s super relevant.

c) As we saw when we discussed the hunger poverty trap, mechanisms existing does not

mean that there will be multiple equilibria (so: hunger probably does cause people to be

less productive, and poorer people do eat less, but neither effect is large enough to create

an S-shaped curve for the relationship between hunger today and hunger tomorrow).

Given your quantitative answers in (b), do you think multiple equilibria is an explanation

for the phenomena you describe in (a)? It is totally fine if the answer is “no” – please do

not start a new topic if you discover that your theory is wrong. As long as your theory is

plausible and you do good empirical work, I don’t care about the theory being correct or

not. However, you should not say that your theory is correct if the evidence isn’t there.

The papers are graded holistically, so you don’t need to give each section equal weight: if you

are really excited about theory you can focus on that at the expense of the other sections

2 The topic doesn’t even need to be about economics – as long as you are making an argument for multiple

equilibria, I’m happy.

(although you should probably talk with us first if you want to make the whole paper about one

of the parts). In the past, students have deviated further from the prompt (for instance replicating

the data analysis of a published paper, or discussing a policy whose motivation is shifting a

group from one equilibrium to another), but you should talk with well in advance if you have

something like this in mind.

I will not grade you on the elegance of your writing, but your papers should at least be copy- edited (spelling and grammar checked). You should feel free to use ChatGPT and similar

resources for help writing your essay (especially for copy-editing). Honestly, I can’t emphasize

this enough – there is no reason for your essays to be full of typos and inconsistencies.

While ChatGPT and similar resources are amazing, you should come up with the idea and

arguments yourself.

You should cite your sources in a consistent & clear manner, but I do not care about the specific

format. That said, overleaf is extremely good at managing bibliographies, and ChaptGPT is really

good at creating bibtex references from papers. So you should strongly consider using Overleaf

for your final essays.

I will personally grade your papers. Please do not waste space defining what multiple equilibria

are, discussing about examples that aren’t relevant to your specific setting, or in general adding a

bunch of fluff so that your paper is longer. That is boring for me to read, and I am do not like

being bored. Similarly, I know what got covered in class, and I will get bored if your essay is

mostly repeating course material.

Your essays should be around 2500 words, or roughly 10 double spaced pages of text. This is not

very long, so please keep your paper focused. Submit a (stapled & typed) hardcopy of this

assignment in class, in my office, or in my mailbox on the 6th floor of 19 W4th Street. You must

also submit a pdf of your paper to Brightspace. Please put your name in the filename of the pdf, in

the following format: “lastname –title.pdf”

Some students feel confident enough to ask for extensions, while other don’t. Also, I don’t like

having to decide what kinds of excuses are reasonable. In order to be fair, if you want an extension,

you don’t even have to ask for it, I’ll give it automatically. The extension is until December 16 at

noon (You still need to upload your essay and get me a hard copy). No further extensions will

be given for any reason. I’m going to repeat that for emphasis. You get to choose if you want an

extension. If something happens to you between December 13 and 16 that makes you unable to

finish your essay, I’m not going to be sympathetic.

I want you to be thinking about your essay for longer than the few days right before the due date.

To that end, the week of December 2, we won’t have any regular office hours or lectures. Instead,

each of you will have to discuss, in person, your idea with Shizhuo or me. In addition to the regular

grading of the essay, you will also be evaluated on how prepared you are to discuss your idea, and

how well you incorporate our feedback. We’re looking for you to have thought about your setting,

why multiple equilibria is relevant, and to have a sense of what evidence you will put together.

We’ll send around sign-ups in November.

I’m looking forward to reading your essays and chatting with you about your ideas. You have

spent several years learning economics. This is a chance for you to show off your skills and

creativity.

51作业君版权所有