Midterm Exam
ARE/ECN 115A: Development Economics
Spring 2020
Instructions: Similar to the problem sets, you must use this Microsoft Word document to answer the questions. After completing the exam, you must convert the document to PDF format and upload to Gradescope. You may use your notes, books, articles, and recorded lectures to answer the questions. You may send questions of clarification to Professor Meinzen-Dick via Canvas. You must work BY YOURSELF on this exam. You may not discuss any of the questions or answers with anyone else. Any evidence of cheating will be taken seriously. Sign below and do your own work.
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Part I: True/False and Justify:
For each of the following statements, choose whether it is true or false and justify your choice with a short sentence.
1. One challenge associated with poor households’ investment in health is that many health investments have important externalities.
2. If a good or service is not traded on markets, there is no way to value it.
3. In Cost-Benefit Analysis, quantifying benefits is more difficult than quantifying costs.
4. Amartya Sen argues that income per capita is the best way to measure development.
5. The Human Development Index (HDI) reflects the psychological impacts of poverty.
6. Watching The Queen of Katwe shaped how Ugandan students think socially, by changing their aspirations.
7. Inequality in wealth is generally greater than inequality in income.
8. Random sampling of people for an impact evaluation guarantees there is no selection bias.
9. Conditional cash transfers for education are better at keeping girls from getting ma
ied young in Malawi.
10. Poverty can reduce a person’s “mental bandwidth” for making rational calculations about the future.
Part II: Positive/Normative:
1. Categorize the following reasons for caring about poverty, development and inequality as either normative or positive:
a. Poverty may prevent people from making investments in their future that cause their children to remain in poverty.
. In a world with a global per capita annual GDP of over $17,000, it is wrong that some people go hungry.
c. High degrees of inequality may lead to underinvestment in public goods such as education or public health, because the extremely wealthy can supply these goods privately for themselves.
2. Suggest (in 1-2 sentences each) a normative and a positive reason for a particular concern about COVID-19 in poor countries.
Positive Reason:
Normative Reason:
Part III: Short Answer:
1. Impact Evaluation
In the move to online instruction due to COVID-19, Development University was concerned that its students may not have the technology they needed at home to keep up with their classes. In order to address this issue, at the start of the term, the University offered all students coupons for a 50% price discount on a new iPad. The hope was that the iPad would allow students to participate more fully in their online classes, and therefore allow them to learn more.
Development University heard that you have learned how to do impact evaluation in your economics classes, so asked you to evaluate how well the iPads worked for their students. In particular, they wanted to know if the iPads caused student grades to improve. In looking at the data, you notice that although all students were offered the coupon, only half of them purchased an iPad through the program. Therefore, you decide to compare the average GPAs of students who purchased an iPad to those who didn’t. You find that students who purchased an iPad had an average GPA of 3.4, and students who did not purchase an iPad had an average GPA of 3.1.
a. Write one sentence that clearly describes in the context of this study. Your answer should clearly define the treatment and the outcome variable in this study, not just the abstract language of what means in general.
. Write a sentence that clearly describes in the context of this study. Again, your answer should demonstrate that you have a clear understanding of both the treatment and the outcome variable in this study.
c. Write an equation (in expectations notation) that represents your measured estimate of the average effect of the iPads on student grades. As described above, your estimate is the difference in grades between those who purchased an iPad and those who didn’t.
d. Calculate the ATE using the GPAs provided. Is this estimate the True Average Treatment Effect (ATE)? Why or why not?
e. Do you expect selection bias to be positive, negative, or zero in this case? Your answer should be consistent with how the data was collected.
f. Briefly explain one potential cause of selection bias. Your answer should demonstrate that you have a clear understanding of selection bias and what would cause it.
g. Due to your concerns, Development University decides to conduct a randomized control trial with incoming students in the fall. That is, incoming students are randomly assigned to either receive a coupon for a discounted iPad, or to not receive a coupon. Will this research design allow you to estimate the true Average Treatment Effect of iPads on student performance? Why or why not?
h. In three sentences or less,
iefly describe one concern you may still have with this randomized design.
2. Poverty and Inequality
Consider the following income distribution for a 5-person economy with a poverty line of $5:
Person
Income ($)
% Cumulative Population
% Cumulative Income
1
1
2
3
3
4
4
7
5
10
a. Compute the following measures of poverty and inequality for this economy. Show your work in the boxes below the table.
i. Headcount Index
ii. Total Poverty Gap
iii. Foster Greer Tho
ecke (FGT) Index with α=1 ()
iv. Gini Coefficient (calculate using the pairwise method)
(i.)
(i
(ii.)
(i
(iii.)
(i
(iv.)
. The headcount index does not reflect the depth of poverty below the poverty line.
i. Suggest a specific income transfer within this economy that demonstrates this limitation of the headcount index:
ii. Compute the headcount index after the transfe
iii. Discuss why this feature limits how useful the headcount index is as a measure of poverty.
c. You have just been given $3 of foreign aid. Consider all measures of poverty and inequality we discussed in class.
i. To reduce the share of the population in poverty, which measure would you target?
ii. How would you distribute the aid to reduce the share of the population in poverty as much as possible? What is the measure you identified in (i) after this aid distribution?
iii. To address the absolute poorest in the society, which measure would you target?
iv. How would you distribute the aid to help the absolute poorest in the society as much as possible? What is the measure you identified in (iii) after this aid distribution?
v. To reduce the degree of inequality, which measure would you target?
vi. How would you distribute the aid to reduce the degree of inequality as much as possible? What is the measure you identified in (v) after this aid distribution?