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ECON 413 - Applied Microeconomics

ECON 413 - Applied Microeconomics

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LAHORE UNIVERSITY OF MANAGEMENT SCIENCESB.Sc. (Honours) Programme
ECON 413: APPLIED MICROECONOMICS
Spring 2007
Professor Abid A. BurkiPhone: 5722670-79, Ext. 2248Department of EconomicsE-mail:  burki@lums.edu.pk Room 248Web: http://ravi.lums.edu.pk/burkiMeetings: Tue and Thu, 1145 – 1325Office Hours: Mon and Wed, 1430 – 1630
Course Description:
Lawrence Klein once observed that “econometrics recognizes that social behavior is exceedingly complexand that a limited number of variables related together in fairly simple and elegant equations cannotexplain the whole of such truth.In a typical classroom setting it is tempting to focus entirely oneconometric theory and to loose sight of the underlying goals of the theory, namely to increaseunderstanding of the human behavior by applying these tools.This course is structured to provide students with hands-on experience of implementing econometrictechniques with real world data. The course assumes understanding of basic tools of econometric theoryand microeconomics. Among the topics covered are applications of simple and multiple regressions intocosts, learning curves, and scale economies; measuring wage discrimination by applying dummyvariables; consumer demand models using single equation and systems of equations; factor demandelasticities and elasticities of substitution with flexible functional forms and equation systems; stochasticfrontier and technical efficiency; labor supply and applications of limited dependent variable procedures;and applications of labor supply models to panel data models.There is no single textbook for the course. Most of the readings are chapters in books or journal articles.Some readings are drawn from:1Berndt, Ernst R. (1991).
The Practice of Econometrics: Classic and Contemporary.
Reading: Addison-Wesley Publishing Company.Capalbo, Susan M. and John M. Antle, eds. (1988).
 Agricultural Productivity: Measurement an Explanation.
Washington, D.C.: Resources for the Future.Deaton, Angus and John Muellbaer (1980).
 Economics and Consumer Behavior 
. Cambridge: CambridgeUniversity Press.Hill, R. Carter, William E. Griffiths and George G. Judge (2001).
Undergraduate Econometrics.
SecondEdition. New York: John Wiley & Sons, Inc. Chapter 7 & Chapter 8.
Grading:
The course grade depends on
assignments (30%),
final exam (30%)
Research Project (40%)
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Syllabus and Reading Assignments
1. 1Introduction
Introduction to the course; required computer software; economic model vs. econometric model; simplelinear regression model and inference; multiple regression model; application and hands-on exercises.Hill, R. Carter, William E. Griffiths and George G. Judge (2001).
Undergraduate Econometrics.
SecondEdition. New York: John Wiley & Sons, Inc. Chapter 7 & Chapter 8.
2. Applications of Simple and Multiple Regressions to Costs and Learning Curves
Econometric issues encountered in estimating the cost effects of scale economies and learning curves.This will help to understand differences between simple and multiple regressions, to assess the effects of incorrectly omitting variables from a regression equation, and to implement alternative ways of testinghypotheses. Hands on with costs, learning curves, and scale economies.Berndt, Ernst R. (1991). Costs, Learning Curves, and Scale Economies.
The Practice of Econometrics:Classic and Contemporary.
Chapter 3, 60 – 101.
3. Measuring Wage Discrimination: Dummy Variables in Regression Models
The human capital model; issues in econometric implementation of the human capital model;determinants of wages and estimating the wage effects of discrimination. Hands-on with estimatingdeterminants of wages and earnings.Berndt, Ernst R. (1991). Analyzing Determinants of Wages and Measuring Wage Discrimination:Dummy Variables in Regression Models.
The Practice of Econometrics: Classic anContemporary.
Chapter 5, 150-223.Taylor, L.L. (2007). Comparing Teacher Salaries.
 Economics of Education Review
. (Forthcoming)
4. Consumer Demand Models: Single Equation vs. Systems of Equations
The theory of the household; double log model; Stones approach to demand models; Linear ExpenditureSystem; the Rotterdam model; the almost ideal demand system; applications to time-series data.Burki, Abid A. (1997). Estimating Consumer Preferences for Food Using Time-series Data of Pakistan.
 Pakistan Development Review
. 36(2), 131 – 153.Deaton, Angus and John Muellbaer (1980).
 Economics and Consumer Behavior 
. Cambridge: CambridgeUniversity Press.Gundimeda, H., and G. Kohlin (2006). Fuel Demand Elasticities for Energy and Environmental Policies.
 Energy Economics.
 Hill, R. Carter, William E. Griffiths and George G. Judge (2001).
Undergraduate Econometrics.
SecondEdition. New York: John Wiley & Sons, Inc. 353 – 357.Johnson, S.R., Zuhair A. Hassan and Richard D. Green (1984).
 Demand Systems Estimation: Methods an Applications.
The Iowas State University Press.
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5. Theory of the Firm: Estimating Factor Demand Elasticity in Systems of Equations
The theory of the firm; hands on estimation of demand for factors of production using Cobb-Douglas andCES production functions and interpretation of parameters. Duality and flexible functional forms,generalized Leontief cost function, the translog specification, and measuring total factor productivitygrowth. Applications to Berndt-Wood KLEM data for U.S. manufacturing sector. Comparison of equation-by-equation and IZEF procedures, substitution elasticities and curvature checks.Berndt, Ernst R. (1991). Modeling the Interrelated Demands for Factors of Production: Estimation andInference in Equation Systems.
The Practice of Econometrics: Classic and Contemporary.
Chapter 9, 449 – 506.Capalbo, Susan M. and John M. Antle (eds.).
 Agricultural Productivity: Measurement and Explanation
.74 – 82, 159 - 188.
6. Stochastic Frontier and Technical Efficiency
Defining technical efficiency of firms, description of stochastic frontier model, composed error structureand distributional assumptions, estimation of mean technical efficiency, and determinants of efficiency.Hands-on estimation of stochastic frontier model with data from Pakistan’s banking sector.Aigner, D., C.A. Knox Lovell, and P. Schmidt (1977). Formulation and Estimation of Stochastic Frontier Production Function Models.
 Journal of Econometrics.
6, 21 – 37.Coelli, T., D.S.P. Rao and G. Battese (1998).
 An Introduction to Efficiency and Productivity Analysis
.Kluwer Academic Publishers. 183 – 198.
7. Labour Supply: Applications of Limited Dependent Variable Procedures
Models with discrete dependent variable, the Probit model, hypothesis tests in Probit model, the Logitmodels, the Tobit models, applications to labor supply, selectivity issues. Applications to Mroz data seton female labor supply in the U.S.Berndt, Ernst R. (1991). Whether and How Much Women Work for Pay: Applications of LimitedDependent Variable Procedures.
The Practice of Econometrics: Classic and Contemporary.
Chapter 11. 593-680.Mroz, Thomas A. (1987). The Sensitivity of an Empirical Model of Married Women’s Hours of Work toEconomic and Statistical Assumptions.
 Econometrica.
55(4): 765-799.
8. Labor Supply: Applications of Panel Data Models
Panel data models; pooled model; fixed effects and random effects models; estimation of pooled, fixedeffects and random effects models with applications to Ziliak (1997) data on male labor supply in the US;Hausman specification test.Gujrati, Damodar N. (2004)
 Basic Econometrics
. Fourth Edition. McGraw Hill. 632 – 655.Ziliak, J.P. (1997). Efficient Estimation with Panel Data When Instruments are Predetermined.
 Journal of  Business and Economic Statistics
, 15, 419 – 431.
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