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9/3/2012 EC 561 PUBLIC : Fall 2011 PG 1 of 6

SYLLABUS ECONOMICS 561 PUBLIC ECONOMICS: APPLIED FOR PUBLIC PUBICY DECISIONS

I. COURSE SYNOPSIS This course applies microeconomic theory to quantitative decisions. The unifying underlying methodology is applied economics or cost-benefit analysis. The applications are to project evaluation, taxation, regulation, shadow pricing, privatization, policy impact analysis and valuing external effects such as and congestion.

II. COURSE ADMINISTRATION A. FACULTY Name: Leroy P. Jones Office Hours: Tuesday/Thursday 11:40-1:30 am; or by appointment. Office: 264 Bay State , Room 517c Phone: 353-4123 Email: [email protected] Class: Tuesday/Thursday 3:30-5:00 pm Room : 264 BSR, Room 315 Final Exam: Tuesday December 18 3-5 pm

B. GRADING Problem Sets 30% Mid-Term Exam 30% Final Exam 40% Total: 100%

C. READING MATERIALS 1. General Reading materials for the course will in some cases be a source of frustration. There are two problems. First, very little is written at the Masters level in Economics so in general one has to choose between undergraduate materials that are too rudimentary and PhD materials which are overly mathematical and theoretical. Second, at no level is this particular mix of topics covered in a single book. Although the underlying methodologies are identical, the applications appear in diverse volumes on project evaluation, industrial , , regulation, transportation, environment and privatization/public 9/3/2012 EC 561 PUBLIC ECONOMICS: Fall 2011 PG 2 of 6 enterprise. As a result, we will be drawing from an uncommonly diverse and imperfect list of material. Only Stiglitz is available at the book store. Special arrangements will be made for the other material.

2. Texts , Economics of the Public Sector; Third Edition (New York: Norton, 2000).

Arnold C Harberger, Glenn P Jenkins and Chan-Yun Kuo, Cost-Benefit Analysis for Decisions (forthcoming)

III. PREREQUISITES Undergraduate Intermediate Micro (such as Ec 201) is required; Masters Micro (such as Ec 501) is desirable. An undergraduate Public Economics course (such as Ec 367) is assumed, but can be readily substituted for by a combination of intelligence, diligence, a good Micro background and in applied policy work. As a matter of fact, the latter set of characteristics is preferable to the former. The course is designed for students viewing the MA as a terminal professional degree. It is not recommended for those looking for a soft transition path to a Ph. D. Program. Good undergraduates with the characteristics described above are at no disadvantage.

IV. HOMEWORK Problem sets are central to the course because most people don’t really understand an economic concept until they have struggled to apply it. Problem sets are long and often difficult. As a result, students generally evaluate the course as taking far more work than the average at BU. Group work on problem sets is encouraged, so long as answers are written up individually. Work handed in one class late is penalized 25%; work handed in 2 classes late before class is penalized 50%; thereafter, no credit is given as answer sheets will have been provided.

V. MAKE-UP EXAMS When only one or two people take an exam, it is virtually impossible to distinguish between student and faculty incompetence (that is, between poor preparation by the student and an overly difficult exam by the faculty member). Make-up exams will therefore be given only under the most extreme circumstances, and will be graded conservatively.

VI. OBLIGATORY LEGAL BS Familiarity with the CAS Academic Conduct Code is assumed. Material in this syllabus is subject to change at the professor’s discretion, subject to an announcement in class.

VII. COURSE OUTLINE & READINGS The following outline contains too much material for a single semester course. We will do Sections A-E and the perhaps 2 of the remaining sections, depending on students’ preferences. Readings for the optional sections are only indicative and the ones actually chosen will be updated.

9/3/2012 EC 561 PUBLIC ECONOMICS: Fall 2011 PG 3 of 6

A. VISIBLE VERSUS INVISIBLE HANDS: ECONOMIC THEORY OF GOVERNMENT INTERVENTION PUBLIC ECONOMICS: BACKGROUND Joseph Stiglitz, Economics of the Public Sector (New York: Norton, 2000). Read Chapter One, “The Public Sector in a Mixed ”, and Chapter Two, “The Public Sector in the United States.

MARKET SUCCESS (at achieving ) Joseph Stiglitz, Economics of the Public Sector (New York: Norton, 2000). Read Chapter Three, “ Efficiency.

MARKET FAILURE (to achieve Pareto Efficiency) Joseph Stiglitz, Economics of the Public Sector (New York: Norton, 2000). Read Chapter Four, “: Efficiency versus ” and Chapter Five, “Efficiency and Equity”.

B. BENEFIT-COST BASICS Joseph Stiglitz, Economics of the Public Sector (New York: Norton, 2000). Read Chapter Eleven, “Cost-Benefit Analysis.

C. BENEFIT-COST: MODERN FRAMEWORK SOURCES OF PUBLIC/PRIVATE Glen Jenkins and Arnold Harberger. Cost Benefit Analysis of Investment DIFFERENCES & Decisions. Read Chapter 7, “Objectives and Framework for Economic Investment Appraisal”; Appendix A, “Economic Foundations of Investment Appraisal: Demand and Benefits”; and Appendix B, Economic Foundations of Investment Appraisal: Supply and Costs.”

Glen Jenkins and Arnold Harberger. Cost Benefit Analysis of Investment. WITHOUT DISTORTIONS Read Chapter 8, “The Measurement of Benefits and Costs in Undistorted Markets”.

Glen Jenkins and Arnold Harberger. Cost Benefit Analysis of Investment WITH DISTORTIONS Decisions. Read Chapter 9, “Measurement of Benefits and Costs in Distorted Markets”.

D. SHADOW/ECONOMIC DOMESTIC VERSUS FOREIGN PRICES Glen Jenkins and Arnold Harberger. Cost Benefit Analysis of Investment Decisions. Read Chapter 10, “Economic Prices for Traded and the Economic of Foreign Exchange”.