Final. Spring 2005

Name:_______________________ Economics of Development

Each question is worth the total number of points in parentheses; sub-questions are allocated an equal share of the total points per question. Final is worth 30 points.

1) Population issues. (4 points)

a) Fill in the following table, and use the results to illustrate the concept of the hidden momentum of population growth. Fr stands for the total fertility rate of the associated age cohort during their reproductive years. Assume future youth cohorts will have a total fertility rate of 2. Total population is for males and females; assume 50% of the population is female. This is the same as the example presented in class.

	Gen 1	Gen 2	Gen 3	Gen 4
youth fr=2
reproductive fr=2
post reprod. Fr=2	20
Total population	120

	Gen 1	Gen 2	Gen 3	Gen 4
youth fr=2
reproductive fr=3
post reprod. fr=4	10
Total population	120

b) Illustrate on a graph and briefly explain the different phases of the demographic transition.

2) Inequality (3 points)

a) Draw a Lorenz curve of income distribution, and illustrate how you can derive a Gini coefficient from the Lorenz curve graph.

b) Draw a Kuznets curve (the original one, not the environmental one) and briefly explain what it means.

3) True or False (6 points)

Statement	Circle whether the statement is true or false
The inverse farm size productivity relationship implies that small family farms should be consolidated into larger farms to realize economies of scale.	True False
The demand for children model indicates that increased job opportunities for women can lead to lower population growth rates.	True False
Research suggests that it is relatively common for informal sector enterprises to start small and transition into the formal sector as they grow larger.	True False
Hirschman argued forward and backward linkages justified explicit support for agricultural development rather than industrial development.	True False
The Harris-Todaro migration model explains why migration to cities may continue in spite of existing urban unemployment.	True False
In Latin America the private internal rate of return to primary education is positive but the social internal rate of return to primary education is negative.	True False
The height for age measure is used as an indicator of past undernutrition.	True False
“Green” net national product (NNP*) measures GNP after subtracting off depreciation of environmental capital assets and depreciation of manufactured capital assets.	True False
Evidence on the relationship between income per capita and urban air quality (particulate matter) is consistent with he “Environmental Kuznets Curve” model.	True False
The majority of the population in developing countries lives in urban areas.	True False
Food production per capita worldwide has been decreasing over the past 30 years.	True False
World population is projected to arrive at a level of 29 billion in 2050, after which it will stabilize around this level.	True False

4) Poverty measures. (3 points)

Person number	Income per day
1	$0.05
2	$0.95
3	$0.99
4	$1.01
5	$2.00
6	$2.20
7	$3.80
8	$4.00
9	$9.00
10	$22.00

TOTAL INCOME $46.00

a) What is the headcount and the headcount index of poverty if the poverty line is defined as $1 per person per day?

b) What is the total poverty gap and the normalized average poverty gap?

c) What share of total income is held by the highest quintile and what share is held by the lowest quintile?

5) Health (3 points)

a) Four types of malnutrition were discussed in class. Identify three of them.

b) What is a disability adjusted life year?

6) Education (2 points)

a) In class, we discussed reasons for addressing gender inequality in education. List four reasons we could use to justify policies that reduce gender inequality in education.

b) Explain the argument that observed patterns of public spending on education in developing countries can lead to increased income inequality from the level observed in the current generation to the level observed in the next generation.

7) Income diversification. (1 point)

Statement	Circle whether the statement is true or false
Estimates of the value of non-farm income in rural areas tend to find non-farm income accounts for less than 15% of total income.	True False
Risk coping describes strategies adopted after an adverse shock is realized in an attempt to maintain food security.	True False
Employment in the farm cash labor market in a rural area is not considered a form of income diversification.	True False

8) Tragedy of the commons. (2 points). Herder A and Herder B can choose to put 1,2, or 3 animals on the commons. Payoffs are as described in each cell of the matrix, with payoff to herder A on the left hand side, payoff to herder B on the right hand side.

	Herder B
Herder A		1	2	3
	1	3 3	2 7	1 8
	2	7 2	6½ 6 ½	5 7
	3	8 1	7 5	6 6

a) What is the Nash equilibrium outcome of this game if each herder plays best response to the other?

b) Can a policy that limits the quantity of animals each herder places on the commons Pareto improve on the Nash equilibrium outcome? Explain.

c) Describe two policy responses to the tragedy of the commons that are commonly recommended (not the ones I presented when discussing my work, but the ones suggested by the standard model).

9) Poverty traps. (4 points)

a) Krishna presents this poverty transition matrix (which we discussed in class). What part of this matrix represents households that fell into poverty, and what general patterns emerged in the study to explain what caused these households to fall into poverty?

	Poor 25 Years Ago	Not Poor 25 years ago
Poor Currently	17.8%	7.9%
Not Poor Currently	11.1%	63.2%

b) Contrast asset poverty to income poverty.

c) Contrast chronic and transitory poverty.

d) Contrast structural and stochastic poverty.

10) Agriculture (2 points).

a) Explain how land tenure reform in a sharecropping system can lead to increased incentives to invest in soil conservation measures.

b) Explain the link between land tenure reform and access to formal credit.

Extra Credit: (1 point, no partial credit)

The demand for children model is presented in the book as:

Define fully each component and identify the hypothesized sign of the derivative of the demand function with respect to each variable.