Scott Rozelle Stanford University Helen Farnsworth Endowed Professorship

1. China – From the Bottom Up:Micro-Theory, Empirical Approaches and the Economics of Development of China Scott Rozelle Stanford University Helen Farnsworth Endowed Professorship Professor and Senior Fellow

2. Overall schedule for today • Introduce the class • Lecture on Binswanger and Rosenzweig (Creating a Framework for Thinking about Development Economics) • Using the Framework for Explaining Institutions in China • Next time: Agrist and Krueger / Li and Rozelle

3. 4 things in 5 days • Why do we need to study institutions in developing countries, including China [what do development economist do] 2. How to think about research (asking the right questions) a. Determinants of institutions (why do they exist / work in some places, but not others) b. How do we measure how institutions affect outcomes? 3. Methodological issues Endogeneity of institutions Instrumental variables approaches Fixed effect approached Differences in Differences / Propensity Score Matching 4. Learn some interesting things about China

4. Summary • Go over the syllabus • Goals and objectives: The overall goal of this class is to teach about applying theory and methods that students have learned in Economic Theory, Econometrics, Quantitative Methods, and other classes to studying problems of economic development in China. The emphasis of the course mostly will be on teaching students new methods – most of which will be applied econometrics. But, we also will be working hard on trying to understand the context of our applications—China, the fastest, most dynamic developing country in the world. We will be going from the problem being examined to the theory from the theory to the method and then back to the problem. We hope to help you continue in your pursuit of learning to become to think like an applied economist in addressing the problems of the world that we study.

5. Decision Making in Developing Countries and the Organization of Rural ProductionImportance of Institution Lecture 1 LICOS`

6. Read for Today • Binswanger and Rosenzweig: pp. 503-517 • The ppt is derived from the reading

10. Institutions • Production relations: • How people interact with the factors of production • How people relate to other people • Currnet – using the inputs • Long term – owning the inputs (using and collecting the income from them ..

11. Preferences, Environment and Behavior in Rural China Environment: Risk and costly poor information Preferences

12. Travel time intensive: high information costs Because difficult/impossible to monitor: a.) Leads to no labor markets in agriculture / b.) poor efficiency of collective farming  dominance of family farming

13. Explaining the World We See • Why is there polyandry in Tibet and polegamy in Subharen Africa • Why are marriages arranged in poor rural China, but not in richer areas? • Why are brides married out of the village? • Why do parents give their daughter a dowry? • Why was the dowry > bride price in North China; bride price > dowry in the South China • Why was my wife’s mother a child bride?

14. C-word • culture

15. Tibet env. • Mountainous • Land – cultivated • Fragile • Lots of pasture  yaks  herding activities, all far far away … • Monsoon … rains in some places / not in others … grass grows in some place / not in others …  high risk to find pastures .. • 2 seasons … winter with snow (rely on feed) … summer in pasture

16. Dowry: • you might want to break the body of your paper into two parts ... • one: why families arrange marriages ... • two: dowry makes arranged marriages MORE valuable ... by putting a girl in a better place ... • the economic logic for arranged marriages are: • to start you should start with the discussion: ... what do families need: income and low risk (insurance) -- but there are no insurance markets ... or no good legal environment to do business in ... so, in such a context, what is the economic value of a daughter after she gets married ... there are costs and benefits to her leaving the house ... were you in the section that i discussed this in? • costs: lose her labor and earnings; • lose her daily presence and love; • benefits: reduce consumptoin costs; • AND, if she marries out of the village and the families stay in touch (as they do in vietnam), then the family could turn to the daughters family if they have hardships, that they can not cover by their contacts inside the village (often need this if the whole village is hit by a shock, like a flood, etc.) ... so family is gaining social insurance • OR, if she is in a merchant family she might be married to another family as a source of "trust" ... and in countries with an absence of legal environment and markets, this is a benefit (this acutally is why they will pay a dowry .. to move her up the ladder and create more valuable social/business connections ..) • so why arrange the marriage? to get her in the village that has the best insurance value .. or to get her in a family that has the most business value, you can not leave this to chance ... there is a stong motivatoin to be involved in the marriage .. is it not until socity develops the formal institutions (like courts and buiness regulations) and is welathier that the value of the daughter in providing insurance and business potential, that families stop intervening and allow young adults to make their own decisoin .. • now, that said: move on to the second question: so, why give a dowry/brideprice? there are two reasons ... • one: to make the insurance or links more valuable ... with a side payment you can put her in a better family ... • but, in india there is a second reason ... the family that gives away the daughter may be afraid that after putting their daughter into their new home, something might happen so her life style reduced the amount of insurance she cann provide (e.g., because her husband dies / her husband divorce her) ... as a result, part of the dowry given at marriage is actually given directly to the woman ... it is hers ... it is valuable ... and it is to be used in case some thing were to happen to her or her family so she could continue to survive ... but they want the option of using this insurance to be in the hands of the daughter herself (not her family -- because they might want to spend it on something else) ... so they give the daughter a piece of jewelry and do some things (e.g., take her pciture with it on) to produce evidence that the dowry is actually hers ... in this way you can think of it as "insurance for insurance" ...

17. Read for next time • Angrist and Kruger … • mainly think about how they measured the return to education … why did they use IV’s … • Look at the last table … where they give a lot of examples about papers that need to use IV because of endogeneity … • Skim: Li and Rozelle (privatization and profits of rural enterprises) …