36 - Randomization in Development Economics Lemin Wu D...

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Randomization in Development Economics Lemin Wu DEPARTMENT OF ECONOMICS UNIVERSITY OF CALIFORNIA AT BERKELEY January 19, 2011
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Overview of the course I This course discusses recent research and policy developments. The core objective is to expose students to different aspects of research in economics and how it influences policy. I Econ196 is taught jointly by a number of faculty members in the Economics department and by two GSI/Acting Instructors (AIs). I This Spring, the course discusses developments in behavioral economics, labor economics, public finance, industrial organization, and macroeconomics. I It consists of 42 hours of lectures, 2 short papers (12-15 pages), and required weekly readings.
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Evaluation I You will write two term papers (12-15 pages), each on a topic of your choice from the list below. I We strongly encourage students to turn in their papers as early as possible. I Dont wait until the week before the due date to write your papers. You will not be able to do it and stay sane! I The AIs will be available with office hours to help you define, narrow and obtain feedback on your proposed term papers.
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Faculty 1. Jan 19 and Jan 26 Stefano DellaVigna : Randomization in development research 2. Feb 2 and Feb 9 David Card (1995 Clark medal): Labor economics 3. Feb 16 and Feb 23 Pierre-Olivier Gourinchas : International economics 4. Mar 2 and Mar 9 Alan Auerbach : Public Finance 5. Mar 30 and April 6 Benjamin Hermalin : Industrial Organization 6. April 13 and April 20 Christina Romer (Chair of the Council of Economic Advisers in the Obama administration): Great Depression
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At the end of today’s lecture, you will. .. 1. remember or learn the essentials of ordinary least square (OLS) estimation. 2. remember or learn the intuition behind instrumental variable (IV) estimation. 3. understand the advantages of randomization in development economics. 4. know how to optimize your experiment design under the constraint of financial budget. 5. know what to look at for the limitations of a development economic research.
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Correlation vs. Causality I The first inequality you learnt from econometrics class is CORRELATION 6 = CAUSALITY ”. I While corrleation is easy to calculate with collected data, it usually takes methods such as IV and Randomization to arrive at causal relationship. I Question for you: For example, why can’t we get the price elasticity of demand by simply looking at the correlation of percentage changes between price and trade volume? (The problem of demand elasticity is equivalent to by how much a price change will cause a quantity change.)
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Correlation vs. Causality I Hint: Because the equilibrium pairs of price and quantity are points where the demand curve and the supply curve intersect. There are not only supply shifters the variation of which traces out a demand curve but also demand shifters which introduce noise into the estimation of demand elasticity. I
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This note was uploaded on 03/18/2011 for the course ECON 196 taught by Professor Pierre during the Spring '10 term at University of California, Berkeley.

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36 - Randomization in Development Economics Lemin Wu D...

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