Economics of Culture and Institutions

April 13, 2013
Alberto Bisin of New York University and Paola Giuliano of the University of California, Los Angeles, Organizers

Alberto Alesina, Harvard University and NBER; Johann Harnoss, University of Lille; and Hillel Rapoport, Bar-Ilan University

Birthplace Diversity and Economic Prosperity (NBER Working Paper No. 18699)

The diversity of people has economic costs and benefits. Using recent immigration data from 195 countries, Alesina, Harnoss, and Rapoport propose an index of diversity based on people's birthplaces. This new index is decomposed into a "size" (share of foreign born) and a variety (diversity of immigrants) component and is available for 1990 and 2000, and for the overall as well as for the high- (workers with college education) and low-skill fractions of the workforce. They show that birthplace diversity is largely uncorrelated with ethnic and linguistic fractionalization and that - unlike fractionalization - it is positively related to economic development, even after controlling for education, institutions, ethnic and linguistic fractionalization, trade openness, geography, market size, and origin-effects. This positive association appears particularly strong for the diversity of skilled immigrants in richer countries.

Saumitra Jha, Stanford University, and Alberto Diaz-Cayeros, University of California at San Diego

Does Contract Failure Foster Ethnic Assimilation? Evidence from Cochineal in Mexico

When does exposure to trade lead to coercion and poverty for indigenous communities, and when may it lead instead to market access, poverty reduction, and ethnic assimilation? Jha and Diaz-Cayeros explore how contractual incentives generated by inter-ethnic complementarity and costly verifiability can secure long-term, sustained gains and engender ethnic assimilation among indigenous communities. They focus on communities involved in the cultivation of one of the world's most valuable traded commodities: cochineal - the "Spanish Red". The authors exploit the discontinuous fragility of cochineal with respect to micro-climatic differences during the growing season in order to identify the effect of a legacy of cochineal production. They find that a legacy of cochineal production lowered the head-count poverty ratio in Mexican municipalities by 0.1. That was comparable to the entire ten-year effect of Progressa/ Oportunidades. It also raised female literacy by 0.6 percentage points. However, municipalities that once produced cochineal are now more unequal, have fewer indigenous households, and are less likely to formalize indigenous local government institutions. Furthermore, unlike non-cochineal producing areas, areas where indigenous agents were best able to renege on contracts saw the greatest gains in female literacy and poverty. Drawing on original historical sources, including a secret handbook for Spaniards bidding for local office, they interpret these results as reflecting inter-ethnic complementarity in trade, and, ironically, weak contract enforceability by intermediaries that encouraged direct market access for the indigenous, particularly women.

David Atkin, Yale University and NBER

The Caloric Costs of Culture: Evidence from Indian Migrants

Atkin investigates whether malnutrition is partly influenced by culture. He shows that inter-state migrants within India consume fewer calories per Rupee of food expenditure than their non-migrant neighbors, even for households with very low caloric intake. He then provides two pieces of evidence in support of an explanation based on culture: that migrants make nutritionally-suboptimal food choices because of strong preferences for the traditional foods of their origin states. First, he shows that migrants bring their origin-state food preferences with them when they migrate. Second, he shows that the gap in caloric intake between locals and migrants is related to the suitability and intensity of these origin-state food preferences: the most adversely affected migrants (households in which both husband and wife migrated to a village where their origin-state preferences are unsuited to the local price vector) would consume 7 percent more calories if they possessed the same preferences as their neighbors.

Davide Ticchi and Andrea Vindigni, IMT Institute for Advanced Studies Lucca, and Thierry Verdier, Paris-Jourdan Sciences Economiques

Democracy, Dictatorship and the Cultural Transmission of Political Values

Ticchi, Verdier, and Vindigni develop a theory of endogenous regimes' transitions (with a focus on democratic consolidation) that emphasizes the role of political culture and its interaction with political institutions. Political culture reflects the extent of individual commitment across citizens to defend democracy against a potential military coup, and it is an endogenous state variable in the model, along with formal political institutions. There are two agencies of political socialization that will play a complementary role in the model: the family and the state. Parents invest resources in order to transmit their own political values (commitment to democracy) to their children. The state invests resources in public indoctrination infrastructures. The authors show that consolidated democracy emerges when sufficiently many people are committed to democracy. Otherwise, the model features persistent fluctuations in and out of democracy, as well as cycles of political culture. Importantly, the politico-economic equilibrium can feature a persistent (but declining) incongruence between political institutions and political culture, which tends to evolve more slowly than formal institutions.

Robert Akerlof, University of Warwick

Duty, Anger, and Compliance

Observers who are angered by rule violations often play a critical role in enforcement. Hence a key question is: when will noncompliance provoke anger, and when will it be excused? Akerlof develops a theory of rule compliance as the outcome of a two-person Bayesian game. The core of his model is its description of what constitutes an excuse. Noncompliance is excused when a "reasonable person" in similar circumstances also would have failed to comply. Applications include the role of "legitimacy" in enforcement; corruption traps; graduated sanctions in punishment; and the acceptability of self-interestedness in markets.

Christine Binzel, University of Heidelberg, and Jean-Paul Carvalho, University of California at Irvine

Education, Social Mobility and Religious Movements: A Theory of the Islamic Revival in Egypt

Binzel and Carvalho examine the economic origins of the Islamic revival that took place in Egypt, and in Muslim societies more generally, in the 1970 to 1980s. They provide the first systematic evidence of a decline in social mobility among educated youth in Egypt. Developing a behavioral model of religion, they then characterize conditions under which a temporary decline in social mobility produces a large and long-lasting rise in religious participation. In their model, religion helps to cope with loss, which occurs when one's consumption falls below an expectations-based reference point. The model provides an explanation for why the educated middle class were in the vanguard of the Islamic revival. Rather than undermining religious belief and participation, this analysis suggests that economic development can make societies more prone to religious revivals.

Shang-Jin Wei, Columbia University and NBER; Xiaobo Zhang, International Food Policy Research Institute; and Yin Liu, Tsinghua University

Status Competition and Housing Prices (NBER Working Paper No. 18000)

In addition to being an asset and a consumption good, housing can be a status good. More concretely, if a family's housing wealth relative to others is an important marker for relative status in the marriage market, then competition for marriage partners might motivate people to pursue a bigger and more expensive house/apartment. To test the hypothesis, Wei, Zhang, and Liu explore regional variations in the sex ratio for the pre-marital age cohort across China. They find strong evidence consistent with the status competition hypothesis.