Transition Costs Economics and Institutional Transition
Professor Liu Chun Wah 廖振華
second term 2000-2001 (ECO 3240)
CCV 905; tel: 8003
off. hr.: Tue 4:30-6:30 pm or by appointment
Tutor: Mr Lee Man Ho, Peter 李文豪
CCV 1001;tel 8202
off. hr.: to be announced or by appointment
Class: Mon 2:30-4:15 pm,Wed 5:30-6:15 pm,CCV 307
Tutorial: One hour per week for 5-6 weeks; time and location to be arranged
Course homepage: http://ihome.cuhk.edu.hk/~b101952/tce/
Description
One of the most puzzling phenomena in economics is the rise and fall of communism. The once highly developed industrialized economies of the Soviet bloc quickly collapsed into underdeveloped poor countries while a backward agricultural China surged to be the world's third largest economy. This is unexpected from a conventional economics perspective. This course will examine how the transition of East European countries and China from centrally-planned economies to market economies can be explained by the economic concepts introduced in this course. The course will emphasize on the perspectives of economic organization and institutional change. While China is specific in some of her institutions and reform measures, she also encounters many economic problems similar to those in other transitional economies. Study of economic transition is not only interesting in itself but also sheds light on the next steps of the Chinese economic reform and even on the restructuring of organizations in our market economy.
This course is open to all interested students. The approach adopted will emphasize on economic concepts and real examples. While students from business, political science, sociology and history should find no difficulty in understanding the materials, economics majors will find the concepts intellectually insightful and the examples practical. (Students of Comparative Economic Systems (ECO 3220), Chinese Economy (ECO 3310), Trade and Investment Among The Chinese Economies (ECO 3340), Politics of the Russian Economic Reform (GPA 2140), Industrial Organization (ECO 3480) and Economics of Information (ECO 4440) will find the course particularly interesting because the subject contents and the approach of this course will be complementary to those of the above courses.) All the lecture notes (Part I, Part II) and references are kept at the reserve of the University Library.
Textbook
1. Paul Milgrom, and John Roberts, Economics, Organization and Management, Prentice-Hall International, Inc., 1992.
References
1. Olivier Jean Blanchard, Kenneth A. Froot, and Jeffrey D. Sachs, eds, The Transition in Eastern Europe, Volume 1 and 2, National Bureau of Economic Research and University of Chicago Press, Chicago 1994.
2. Steven N. S. Cheung, Will China Go 'Capitalist'?: An Economic Analysis of Property Rights and Institutional Change, 2nd ed., Institute of Economic Affairs, London, 1986.
3. Janos Kornai, The Socialist System: The Political Economy of Communism, Princeton University Press, Princeton, 1992.
4. Marie Lavigne, The Economics of Transition: From Socialist Economy to Market Economy, St. Martin's Press, New York 1995.
5. Douglass C. North, Institutions, Institutional Change and Economic Performance, Cambridge University Press, Cambridge and New York, 1990.
Audio-Visual and Web-based Lectures
1. Video 1: Economics in Transition: Poland Vs Russia. (41 minutes)
2. Video 2 : 順德經驗[錄像資料]，監製蕭景路，編導潘達培，鏗鏘集，香港(22 minutes)
3. Video news clips: The 9th National People's Congress and Zhu Rongji's economic policy, TVB News, Hong Kong, 1998-2000. (新聞錄像﹕九屆人大和朱鎔基的經濟政策，香港﹕無線新聞，一九九八年/二零零零年。) (15 minutes)
Assessment
Problem sets 5%, Midterm 45%, Final exam 50%
The Midterm is scheduled on February 26 (Friday) 8:30am - 10:30pm. April 19 (Monday) 8:30am - 10:30pm will be used for make-up classes, if necessary. Depending on the midterm performance, a group of students may be selected to do a group project instead of taking the final exam.
There will be 5-6 problem sets which require you to apply the economic concepts learned in this course to analyze the practical problems in transitional economies. The solutions of the problem sets will be discussed in the tutorial sessions. It is highly recommended that students solve the problems independently before the sessions. The midterm and final exams will consist of problems similar to those in the problem sets and past exams. To ensure that you work on the problem sets, you are required to hand in your homework, although they will not be graded.
To enhance your presentation skills and analytical power, there will be six tutorial classes. Starting from the week of Jan 25 to the end of the semester (April 16), there will be an one-hour tutorial for six weeks. Please prepare by working on the problem sets and by thinking the questions before you attend the tutorials.
Before the Midterm, the tutorials will include problems solving on organization theory. The Midterm will exam your understanding on theoretical analysis. After the Midterm, we will turn our focus to case studies in transitional economies like China and Russia. Lectures, problem sets and exam questions will emphasize on applying the theoretical analysis you have learned to real economic problems in these countries.
Course outline
I . Transaction Cost Economics and Organization Theory
1. New Institutional Economics: Will China Go Capitalist?
2. Efficient Principle and Coase Theorem - Tutorial 1
3. Coordination I: Allocative Efficiency
4. Coordination II: Informational Efficiency - Tutorial 2
5. Incentive I: Incentive Efficiency
6. Incentive II: Ownership and Property Rights - Tutorial 3
II .Economic Transition: Application of Theory - Midterm
7. Socialism/Communism
- Case study 1: Great Depression vs. Hilter/Stalin Boom (discussed in L4)
- Case study 2: Why productivity drops in socialism?
8 Introduction to Transition
9. Brief Country Survey
10.Coordination: Stabilization and Market
- Case study 1: Russia Vs Poland (video)
- Case study 2: Shortage under free prices in Ukraine
- Case study 3: Loss-making SOEs in China
- Case study 4: University education in HK
11. Incentive: Privatization and restructuring
- Case study 1: Privatization by sale (Poland/Hungary) Vs voucher privatization (Czech/Russia)
- Case study 2: Restructuring of Polish SOEs
- Case study 3: SOEs/banking reform in China
12. Comparing China and EE/FSU
- Case study 1: Why did output drop drastically in FSU but not in China? Dualism Vs Two-tier price system
- Case study 2: Corruption, bribery and organized crime
- Case study 3: Agricultural reform in China/USSR
- Case study 4: Unemployment: Revise old SOEs or setup new private firms?- Tutorial 4
13. Special Topic: The 9th National People's Congress (九屆人大)
- Case study 1: Reform of SOEs in China
- Case study 2: Restructuring of the Chinese Government
- Case study 3: Zhu Rongji(朱鎔基)'s blueprint for China's economic reform
- Case study 4: From the First session to the Second Session
- Case study 5: China's entry into the World Trade Organization (WTO)
14 Organizational Forms of Firms and Economic Systems
- Case study 1: Jardine Vs Chong Kong in 1980s
- Case study 2: Ford Vs GM in 1920s
- Case study 3: Decline of socialism 1970-90
- Case study 4: GM Vs Toyota
- Case study 5: Planned Vs Modern market economy
Case study 6: Dell Vs Compag - mail orders
- Case study 7: U-form Vs M-form economies - The miracle of TVEs - Tutorial 5
Makeup class
Final exam