ECON-UA 323: ECONOMIC DEVELOPMENT

Final Paper
Due: December 13, 2025

I want you to write a paper about multiple equilibria.

We see differences in behavior in outcomes and behavior all over the world. Some are economic-
some people are wealthy and others are poor, people and countries are concentrated in different
industries, have access to different transportation methods and networks, have different
education/health/political systems, etc. Others are not economic – some people drive on the left
and others on the right, countries have different types of power outlets, some people say “tu” and
others say “vos” when talking to friends (while others don’t even talk in Spanish!), some people
like spicy food and others don’t. We don’t always have to “see” the path not taken to think about
it: for instance, consider about the qwerty default for keyboards, or that north is “up” in maps.

These differences in behavior could be due to fundamentals (for instance: spicy food is more
useful in hot places), luck (spicy peppers happen to grow in Peru but not Argentina), or they
could be due to self-reinforcing behavior (if kids aren’t brought up earing spicy food, they are
unlikely to eat them as adults). Often the fundamental reason dies out, but the behavior remains,
this is called hysteresis.1

In development, an iconic example of multiple equilibria are poverty traps: Kiminori Matsuyama
has a helpful discussion of poverty traps here, and Mullaianathan and Shafir describe their
behavioral poverty trap here.

With poverty traps, there are “good” and “bad” equilibria. But multiple equilibria are not only
about poverty traps. In class, we have discussed settings with multiple equilibria where the
equilibria aren’t really ranked, for instance the Magrebi and Genoese solutions to the
fundamental problem of exchange. Multiple equilibria are interesting to think and write about,
and I encourage you to not constrain to yourself only to settings where one equilibrium is
obviously worse. Multiple equilibria remain an area of active research, for instance here is a
recent paper by Garg on multiple equilibria and industrial policy, here is a recent paper by
Ferguson and co-authors on multiple equilibria and conflict, here is a classic paper by Card, Mas,
and Rothstein on neighborhood composition, and here is a classic paper by Echenique on
multiple equilibria in operations research.

To be specific: for your final essay, you should find a particular setting where you think multiple
equilibria are important. In particular, I would like you to discuss some feature of the world that
you think is caused by multiple equilibria (and not by fundamental differences in exogenous
characteristics.). These types of issues are equally as important for micro and macro settings, so

1 To give a silly example: short hair is more useful if you are wearing a helmet, which is why in the West it is more
traditional for men to have short hair. The short hair equilibrium persists even though helmet wearing is now fairly
uncommon.
you should feel free to focus a setting that you care about.2 You do get credit for coming up with
an interesting & unique idea. The best essays go beyond material covered in class. To that end, I
would prefer that you not write about schooling, healthiness, or corruption, although if you have
a topic in those areas that you are specifically excited about you should run it by me first (and, in
general Shizhuo and I are happy to discuss your ideas, and you should take advantage of our
regular office hours).

a) You should start your paper by describing exactly the phenomenon you are interested in.
Even if you think your theory is fairly general, you should pick a specific context to
discuss (like a particular place and a particular time). You can describe your theory in
math (which is what we did for the theories in class), or just words, but be sure to be clear
exactly what the mechanism is that preserves different equilibria.
We also discussed convergence in class. Over the course of the semester, we have seen
that cross country incomes, human capital, capital per worker, and manufacturing TFP
have converged over the last few decades. With multiple equilibria, we would not expect
to see convergence. Why do you think your observed differences will persist (and/or have
persisted)?
b) You should then apply your theory to your specific context. Do the mechanisms you
propose show up? You don’t have to do your own data collection/analysis (although it is
strongly encouraged since we didn’t spend all that time doing R for nothing), but your
paper does need to take the real world seriously. You should really pick a specific place
or two, which will help you find the relevant evidence. Use specific details about those
places to inform your argument.
You can draw from academic papers, policy briefs, newspaper articles, your own
experiences, etc. Be sure think about causality – just because you see a relationship in the
data, it doesn’t mean that it represents a causal effect (I’m not saying that you need an
experiment, just that you need to be honest about what your data shows and try to be
thoughtful about the tools discussed in class).
i) If you want, you can describe why the different equilibria emerged – why
do people behave differently? Hysteresis? Luck? Something else? But you
don’t have to talk about the emergence of the multiple equilibria unless
it’s super relevant.
c) As we saw when we discussed the hunger poverty trap, mechanisms existing does not
mean that there will be multiple equilibria (so: hunger probably does cause people to be
less productive, and poorer people do eat less, but neither effect is large enough to create
an S-shaped curve for the relationship between hunger today and hunger tomorrow).
Given your quantitative answers in (b), do you think multiple equilibria is an explanation
for the phenomena you describe in (a)? It is totally fine if the answer is “no” – please do
not start a new topic if you discover that your theory is wrong. As long as your theory is
plausible and you do good empirical work, I don’t care about the theory being correct or
not. However, you should not say that your theory is correct if the evidence isn’t there.

The papers are graded holistically, so you don’t need to give each section equal weight: if you
are really excited about theory you can focus on that at the expense of the other sections

2 The topic doesn’t even need to be about economics – as long as you are making an argument for multiple
equilibria, I’m happy.
(although you should probably talk with us first if you want to make the whole paper about one
of the parts). In the past, students have deviated further from the prompt (for instance replicating
the data analysis of a published paper, or discussing a policy whose motivation is shifting a
group from one equilibrium to another), but you should talk with well in advance if you have
something like this in mind.

I will not grade you on the elegance of your writing, but your papers should at least be copy-
edited (spelling and grammar checked). You should feel free to use ChatGPT and similar
resources for help writing your essay (especially for copy-editing). Honestly, I can’t emphasize
this enough – there is no reason for your essays to be full of typos and inconsistencies.

While ChatGPT and similar resources are amazing, you should come up with the idea and
arguments yourself.

You should cite your sources in a consistent & clear manner, but I do not care about the specific
format. That said, overleaf is extremely good at managing bibliographies, and ChaptGPT is really
good at creating bibtex references from papers. So you should strongly consider using Overleaf
for your final essays.

I will personally grade your papers. Please do not waste space defining what multiple equilibria
are, discussing about examples that aren’t relevant to your specific setting, or in general adding a
bunch of fluff so that your paper is longer. That is boring for me to read, and I am do not like
being bored. Similarly, I know what got covered in class, and I will get bored if your essay is
mostly repeating course material.

Your essays should be around 2500 words, or roughly 10 double spaced pages of text. This is not
very long, so please keep your paper focused. Submit a (stapled & typed) hardcopy of this
assignment in class, in my office, or in my mailbox on the 6th floor of 19 W4th Street. You must
also submit a pdf of your paper to Brightspace. Please put your name in the filename of the pdf, in
the following format: “lastname –title.pdf”

Some students feel confident enough to ask for extensions, while other don’t. Also, I don’t like
having to decide what kinds of excuses are reasonable. In order to be fair, if you want an extension,
you don’t even have to ask for it, I’ll give it automatically. The extension is until December 16 at
noon (You still need to upload your essay and get me a hard copy). No further extensions will
be given for any reason. I’m going to repeat that for emphasis. You get to choose if you want an
extension. If something happens to you between December 13 and 16 that makes you unable to
finish your essay, I’m not going to be sympathetic.

I want you to be thinking about your essay for longer than the few days right before the due date.
To that end, the week of December 2, we won’t have any regular office hours or lectures. Instead,
each of you will have to discuss, in person, your idea with Shizhuo or me. In addition to the regular
grading of the essay, you will also be evaluated on how prepared you are to discuss your idea, and
how well you incorporate our feedback. We’re looking for you to have thought about your setting,
why multiple equilibria is relevant, and to have a sense of what evidence you will put together.
We’ll send around sign-ups in November.
I’m looking forward to reading your essays and chatting with you about your ideas. You have
spent several years learning economics. This is a chance for you to show off your skills and
creativity.

学霸联盟