Cultural Diversity

Select and research two countries that you feel are culturally diverse. After comparing the two countries, discuss and identify how the cultural differences influence:

the costs of doing business in each country
the future economic development for each country
the business practices used in each country


Public Goods

Problem 1 (10 points, 1-2 paragraphs):
Why do you think Duflo and Pande’s (2007) estimate of the distributional impacts of dams in
India differs so much from Bao’s (2012) estimate of dams in China? Offer and defend a feasible
hypothesis (or hypotheses) using the language of public economics and social choice.
Problem 2 (10 points, 1-2 paragraphs):
Referring to both Weitzman (2016) and Barett (1999, in “UNDP – Global Public Goods”)
outline the major differences between the outcomes of the Montreal and Kyoto Protocols, and
explain why they are or are not surprising given what you know about cost benefit analysis and
the basic science of ozone depletion and climate change.
Problem 3 (30 points):
Choose one of the following goods and answer the following questions. You may, of course,
refer to outside sources / the internet in your answer and to review your topic.:
The invention of an effective malaria vaccine
The global coral reef ecosystem
Pandemic influenza
a. How rival is this good? How excludable is it?
b. What kind of phenomenon in public economics best captures the economic structure of
this problem? Explain briefly why you think so and if there are multiple competing
answers (e.g., it’s a positive externality but also a club good, etc.)
c. Is this good under or over provided? Explain why using concepts from public economics.
d. Outline two feasible policies for providing the correct level of the good, explain any
potential barriers to implementation for each, and explain which policy you think would
be most successful.
e. Is this policy currently being put into practice? If so, how do you predict the problem to
evolve over time? If not, why not, and what do you think will happen in the future?
Problem 4 (25 points)
In rural Kenya the main livelihood of many pastoral communities is raising dairy cattle. Suppose
that the cost of a dairy cow is 5000 Kenyan shillings. Cows produce milk, which we will
normalize in price to 1. Let us denote the number of herdsmen in a given area of savanna by N,
and indicate the number of cattle that farmer i elects to field in the savanna by xi, letting
X = Σi xi
be the total number of cows. As more cattle graze on the savanna the total amount of available
grass decreases, impacting milk production, such that over the course of a year each cow
produces 50,000 – 200X units of milk.
a) What is the production-maximizing number of cows per herdsman when there is only one
b) What is the production-maximizing number of cows per herdsman when there are N
herdsmen and they cooperate fully? Assume herdsmen act identically.
c) If each herdsman acts independently of his peers how many cows will he decide to field?
Assume all herdsmen act identically.
d) Express the difference between an individual herdsman’s total profit in (b) and in (c). As
the number of herdsmen grows large, what happens to this value?
e) Consider a scenario where herdsmen in scenario (c) are considering two policies, one
limiting the total number of cows that are allowed to graze on their patch of savanna and
one limiting the total number of herdsmen. Which do you think would work better, and
Problem 5 (25 points)
Suppose now that our Kenyan pastoralists must decide how much to spend on restoring the
savanna so as to provide fodder for cows, and decide to do so by holding a village-wide meeting
to discuss the issue and vote. Suppose that the village can spend X million shillings on
restoration, where X ∈ [0, 10]. Suppose further that we can characterize the population of the
Kenyan savanna as consisting solely of three types of households (A, B, and C), with N
households of each type. Household utility as a function of X for each type of household are as
A : UA(X) = 3X − X2
B : UB(X) = 5X − X2
C : UC(X) = 9X − X2.
a) Before the village votes, the village elders select nominations for the amount of savanna
restoration to pursue. Which values of X will each type of household nominate? Label
these XA*, XB*, and XC*.
b) At the town meeting, the elders lead the town through pair-wise voting, i.e., they vote on
XA* versus XB*, then the winner of that round versus XC*, and then vet the winner of
that round versus the loser of the first election, etc. Assume everyone votes for their
preferred choice. Write out the outcome of each election. Does the village easily settle on
a consistent winner this way? If so, which option do they choose, and which type of
pastoralist is happiest?
c) Now suppose that the town is composed of different households of types D, E, and F, and
that the elders decide on nominations themselves. The selectmen choose three possible
outcomes: X = 3, X = 6, or X = 8. Moreover, the three types of households (again with N
households of each type), have preference rankings such that
Ds: prefer X = 8 to X = 6, and X = 6 to X = 3
Es: prefer X = 3 to X = 8, and X = 8 to X = 6
Fs: prefer X = 6 to X = 3, and X = 3 to X = 8
Assuming the same pair-wise voting scheme as before, what is the outcome of the
election? Why is this case different from the scenario in part (b)?
d) Imagine that to solve scenario © one elder is chosen at random to be the “agenda setter.”
This elder chooses the order of pair-wise voting, with the winner of the first pair-wise
vote put up against the third option, and the winner of this second pairwise vote
implemented. Demonstrate that the “agenda setter” can determine the final provision
level that they personally want most, assuming that all households vote sincerely.
e) Imagine that there are many villages following this voting mechanism to decide on local
savanna restoration. If our Kenyan pastoralists are largely mobile and can easily move
from town to town, why might the outcome in part d) not be of concern?



Sample Solution