11.486J | Fall 2005 | Graduate

Economic Institutions and Growth Policy Analysis


Final Exam

Students are required to complete a take-home exam due on the last day of class. The exam is an open book take home exam, and students must answer any three of the following four questions. It should be written in about three hours.

  1. Consider the proposition that the institutions of the firm change with the stage of economic development, in terms of their structure, leadership and mode of competition. How would the “stage of development” be defined in such a theory? What types of firms are likely to emerge in each of these stages? Are these stages likely to be the same in all countries and all periods of history? In your answer, consider specifically the diversified business group, the role of government in promoting these groups, and why they are stronger at some times and in some places than others.
  2. In Peddlers and Princes, Geertz builds an argument about the role of the firm in economic development which implies both a definition and theory of the firm and a definition and a theory of development. What are those theories? How do they compare to the stage theory suggested in the question above? How do they compare to newer theories of the firm such as Oliver Hart’s emphasis on residual property rights and Jenson’s emphasis on incentive structures which resolve the principal agent problem? Geertz acknowledges that development in Indonesia is ultimately dependent upon large state enterprises in industries with enormous economies of scale; is this consistent with his focus on the micro structures of the small towns of Modjokuto and Tabanan?
  3. Enormous emphasis has been placed in recent debates about economic organization on the need for “flexible” economic institutions. Why does the economy need flexibility? Why should the market be more flexible than the large, bureaucratic firm? In terms of this debate, how does one think about network organizations? Are networks a third type of organization or simply a half-way point between market and hierarchies?
  4. What is meant by the term “tacit” knowledge? How would its existence affect the meaning and value of non-tacit (explicit) knowledge? How would the existence of tacit knowledge affect the operation of the economy and the optimal set of institutional arrangements required for its operation?