AMERICAN UNIVERSITY
Department of Economics
Comprehensive Examination
Econ 011 Comparative Economic Systems
.
January 2005
Page 1 of 2
Answer two of the following questions
1) Explain the “crisis” of the welfare state in W. Europe in the late 1980s and early
1990s.
a) What caused these problems?
b) Explain the policies which were used to correct these problems and their
effectiveness.
c) What lessons might be drawn from these policies be for transition economies of
ECE and FSU which are just now developing capitalist welfare states? Explain.
2) In the early 1990s, many scholars believed that the transforming economies of
former socialist countries would develop corporatist systems of labor relations akin to
those in many Western European countries.
a) Using simple game theoretic illustrations, explain several ways in which
negotiations like those in corporatism can improve economic outcomes.
b) Explain what institutional conditions are necessary for successful corporatist
negotiated solutions. Were such conditions present in former socialist countries?
3) Explain the type of good that will be allocated efficiently through markets. (Hint:
you should be able to think of at least 4 characteristics of goods which wouldn’t be.)
4)
a) Explain the principal-agent problem in labor markets.
b) Based on your understanding of this problem, what are your expectations about
the possibility of “free and efficient” labor markets.
c) Economists sometimes speak of labor market “distortions.” What do they mean?
How could a distortion-free labor market be achieved?
d) What kinds of institutions might contribute to efficient labor markets?
5) Many countries have needed to adjust institutions of labor relations as production
regimes have evolved from Fordist toward post-Fordist.
a) Explain why.
b) Compare the adjustment strategies of the UK and Sweden, highlighting how these
provide distinct solutions to the problems
c) Which strategy might be more appropriate for Japan?
6)
a) Why are public goods not allocated efficiently by markets?
b) If states maximize output, (Y), which is a function of private and public capital (P
and G), what would the optimal allocation look like?
c) Now assume that leaders maximize rents, and there are two kinds of states: the
patrimonial state, which can appropriate private output, so that U = U(Y,G) and
UG <0, UY>0, and the bureaucratic state, which appropriates only benefits of state
property (and state purchases from the private sector), so that U = U(Y,G), UG>0,
UY>0. How does this affect the allocation?
d) If leaders’ ability to appropriate Y is dependent on staying in office, and there are
some accountability mechanisms in which voters use Y to measure performance
so that the probability of staying in office is p=p(Y) , then rulers face U= U (G,
p(Y)V) where V is the present discounted value of staying in office. How will this
affect the outcome in c)?
e) Do you expect more public goods provision in relatively democratic and
bureaucratic Hungary or undemocratic and patrimonial Azerbaijan, all else being
equal?
7) Is it true that in the global economy of the current period firms must lower wages
and reduce benefits in order to remain competitive? Provide both theoretical and
empirical support for your position. Is it possible for transition economies to avoid
the “low road” of labor relations?