Discuss some feature of the world that you think is caused by multiple equilibria (and not by fundamental differences in exogenous characteristics.)
For your final essay, I would like you to write about multiple equilibria. 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 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. I would prefer that you not write about years of schooling, healthiness, or corruption.
a. You should start your paper by describing exactly what the phenomenon you are interested in is. Even if you think your theory is more general, you should pick a specific context to discuss. 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. We have seen that, among other things, cross country incomes, human capital, capital per worker, and manufacturing TFP have converged over the last few decades. 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), but your paper does need to take the real world seriously. I would rather you didn’t try to write about all countries at once – you should really pick a specific place or two. 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). If you want, you can describe why the different equilibria emerged – why do people behave differently? Hysteresis? Luck? Something else?
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 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.