Akshat Mehrotra 1).

W + L = I

MED Assignment- 5

PGDMB11- 65

W- Initial Wealth L- Loans I= Total Investment Return= * I Stalling Cost- * Return= = * * I Effort for Debt Collection- L * C(p) Debt Collected- r * L * p Sanjays Payoff assuming he anticipates effort p from lender= *I ( * * I) p(r * L) = (1- )* *I-p*r*L b) If Sanjay himself wants to default then he should be better off by defaulting than non- defaulting. So the condition says: (1- )* *I-p*r*L > ( * I) (L (1 + r)) c) For fixed p the lender would try to reduce the amount of loans so that he can get back max proportion of amount. If increases and r decreases, we can infer from the payoff in 1a that lender will be affected by r only and not by . 2). We cannot say with confidence that there exists a tradeoff between Efficiency and Equity. The topic can be discussed from paper discussed in class about the Operation Barga in West Bengal. Operation Barga is especially interesting because it involved a limited transfer as opposed to a full transfer of property rights (e.g., redistributing landownership). Due to it there was an increase in productivity of the land. There are several other factors which determine the productivity of land. It depends on quality of the land, financial condition of farmer and also the resources he can use. Many times even if farmer is rich he is not able to provide all inputs because of poor infrastructure (irrigation, inavailablity of fertilizers) and poor development (poor connectivity etc) of the area where he is cultivating. Also government plays a role is law and policy-making. If your land is cultivated by tenants then incentives also matters a lot to them. If they realize a sense of ownership then productivity booms. 3). An institution is any structure of social order and with a motive to achieve higher level of income through better governed policies, central planning and law through investing in physical and human capital. The purpose for establishing an institution may judiciary, political, development etc. The focus is to provide resources to improve standard of living or a better social life and economic upliftment. 4a). Richer nations might be more prone to violent internal conflicts. The reason is that mostly in rich countries there is monopoly of some class of people who control most of the economic, political conditions of the nation as was the case of Oligarchs in Russia. Due to this there is social inequality and hence it results in more political instability due to conflicts on several issues. b). Richer nations might be less predisposed to internal conflicts. The reason is in rich nation there is better economic condition of the people and there is less unemployment. So the people are more satisfied with their lives and there is less chances of conflict on small issues which arises when

Akshat Mehrotra

MED Assignment- 5

PGDMB11- 65

people are unhappy with their lives. Also the law and order are better obeyed in developed countries. 5) Median voter is the voter whose tastes are in the middle of the set of voters, so an equal number prefer more and prefer less of the policy. It helps the politician to maximize the no of votes by committing to the policy position preferred by median voter. But politicians may misuse it to form his own policy. 6) It will not be socially efficient amount because median is less than mean. So mean productivity will be more than median productivity. 7a). True, assuming that higher level officials are non-corrupt and would not be involved in corruption either directly or indirectly (asking from lower-level officials). In this case they can tighten the flow of corruption and reduce it. b. It depends on the higher level officials. Even if lower-level officials control corruption and break the chain of passing to higher level, the higher level officials can take from project planners and executioners.