Ch 6 - The role of institutions

Question 1

What are institutions?

Answer 1

Humanly devised constraints that structure political, economics and social interactions

Question 2

What matters for economic incentives is ________ institutions, which may not coincide with ___________ institutions

Answer 2

Effective ( de facto), statutory ( de jure)

Question 3

Why do we need institutions?

Answer 3

1. set the stage for human interaction
2. establish rules to follow for exchange and cooperation
3. allude to profitable ways of cooperation
4. delineat skills and forms of knowledge that are conductive to individuals’ material well being

Question 4

What are the 2 assumptions needed for the IV approach to work?

Answer 4

Relevance condition, exclusion restriction

Question 5

The IV approach can be implemented in a 2 stage process called ________

Answer 5

2 stage least square (2SLS)

Question 6

A direct regression of outcome on the instrument is known as ______-

Answer 6

The reduced form estimate

Question 7

What are 2 potential investment risks?

Answer 7

1. Theft or destruction of investment by other individuals

2. expropriation by gov

Question 8

What are usage rights?

Answer 8

Freedom of individuals in using their property for consumption or production

Question 9

What are transfer rights?

Answer 9

Ability of individuals to rent or sell their assets

Question 10

How do property rights shape individuals’ investment decisions?

Answer 10

1. reduces risk of expropriation
2. easier to use assets as collateral for borrowing or lending
3. expand trading opportunities
4. opportunity to sell or rent out investments