1 Development Problems in Africa 2006 Final Exam (Closed book ...

Development Problems in Africa 2006Final Exam (Closed book)(100 points)Sample AnswersQuestion 1 (32 points: 8 points each)Instructor: Takashi YamanoJuly 19, 2006(a) Provide brief definitions of “absent workers” and “ghost workers.” Whichdefinition of absenteeism underestimates the absenteeism problem?“Absent workers” are defined as workers who are not present in their facilities atrequired times with no official reasons. “Ghost workers” are defined as workerswho are registered as workers but never show up. Clearly, ghost workersunderestimate the absenteeism problem severely, though absent workers stillunderestimate the absenteeism since it does not measure work efforts.(b) Briefly explain “a pull program” and “a push program” in R & D and provideone major advantage and one major disadvantage of each type of the program.“Pull programs” provide rewards to specified products, while “push programs”subsidize research inputs. Major advantages of pull programs are that the fund isonly provided when the specified products are developed and also researchers,who have better knowledge on product developments, use research fundefficiently to produce the specified product. A major disadvantage of pullprograms is that competing researchers do not share their findings in the processso that there is no knowledge spillover until the product is developed.In contrast, a major advantage of push programs is that researchers shareinformation (spillover effects). A major disadvantage of push programs is thatfund providers do not have as much as information about the research so that thefund could be misused or provided to unsuccessful projects.(c) Food aid is often provided in self-targeting schemes. Briefly explain howself-targeting schemes can target the poor people.Schemes can target poor people, whose opportunity costs are low, by requiringthe participation in work schemes, discourage high skilled people by requiringparticipation in training sessions, or discourage people who can afford goodquality food by offering low quality food.(d) Regional integrations can be classified in several stages, such as FTA, CU,CM, and EMU. Briefly describe the differences of these four types ofregional agreements.1

Please see the lecture notes.Question 2 (44 points)Assume the following conditions:Population: 100 personsAverage per capita (original) income: US$ 80Poverty: Headcount Ratio=0.4; Poverty Gap=0.3; Squared Poverty Gap=0.2Poverty line: US$ 50 per personAdministrative costs of targeting:⎧a(F − b)if 1 ≥ F ≥ bAC = ⎨(1)⎩−a(F − b)if b ≥ F ≥ 0where AC = Administrative Costs in US$;F =Number of poor recipients/Total number of all recipients;a and b are coefficients, and a > 0 and 1 > b > 0.(a) (8 points) Consider a safety net scheme that supplement people’ originalincome to bring their total income up to the poverty line. How much money isneeded to implement this scheme? (Consider only the amount of fund thatwill be provided to the people under the poverty line; no administrative costs.)Poverty Gap x Poverty Line x Number of population = 0.3 x $50 x 100 = $1,500Please see the sample answer of Mid-term Exam for details.(b) (8 points) Explain the incentive problems under the scheme in (a).People below the poverty line do not have work incentives because they canreceive $50 regardless of their original income.(c) (8 points) Assuming targeting is costly, find the value for b in equation (1)?Because the administrative cost is the lowest when the aid is distributed randomly,the targeting level would be equal to the headcount ratio. Thus, b = 0.4.(d) (8 points) Consider a uniform transfer scheme, where the scheme providesUS$ A to M recipients. Suppose the administrative cost of targeting isdescribed in (1).(c-1) What is the total cost of this scheme?AM + a (F – 0.4) if F > 0.4,AM - a (F – 0.4) if F < 0.4,AM if F = 0.4(c-2) What is the total amount of fund received by the poor?2

AM is the total amount received by all recipients. Some of them are not poor.The proportion of poor is F. Thus, it isA M F(e) (12 points) Suppose that the total fund available for the scheme is T. Find theoptimal level of F that maximizes the total amount of fund received by thepoor for F ≥ b .Because the total fund is T, we haveT = AM + a (F – 0.4)AM = T - a (F – 0.4)The maximization problem ismax AMF = [T - a (F – 0.4)] F = TF - a F 2 + 0.4a FFOC w.r.t. F,T - 2aF + 0.4a = 0Thus, the optimal level of F isF* = (T + 0.4a) / 2a END(If $1,500 is available, as suggested in (a) and, let’s say, a is 3,000, then theoptimal level is 0.45. On the other hand, if a is 1,500, indicating targeting isless costly, then the optimal level of targeting is 0.7.)Question 3 (24 points: 8 point each)Note: Choose either A or B. If you presented one of the two papers, choose the otherpaper that you did not present.A. Short questions on “False Promise or False Premise?” by Jayne et al. (2002)(A1) What do “False Promise” and “False Premise” refer to in the article?“False Promise” refers to the expected agricultural growth after implementingreforms. “False Promise” refers to the assumption that reforms are actuallyimplemented. (See at the bottom of page 1968 of the paper.)(A2)Draw the two-by-two diagram that the authors used to make theirargument and briefly explain the diagram.See the paper.(A3)What is the main finding in the paper? Answer it within 30 words.3

The authors find that many reform programs are actually not implementedas designed and propose a framework to explain the degree of reformimplementations by the governments.B. Short questions on “Toward a Global Food Aid Compact” by Barrett and Maxwell(2006)(B1) Draw the two-by-two diagram that the authors used to make theirargument and briefly explain the diagram.See the paper.(B2)The authors argue for complete untying of food aid, while Edward J. Clayargues for partial untying. Explain the (DAC) definitions of tied aid,partially tied aid, and untied aid referred by Clay.See footnote 4 of Clay’s response on page 120.(B3)Clay says that domestic interests would oppose untied aid because itwould help their competitors. Explain your answer by using thedefinitions in (B2).Under the untied aid, competitors of the donor country can procure the aid. Thus,Clay argue that domestic interests of the donor country would oppose untied aid.4