Political Economy

April 15, 2011
Alberto Alesina of Harvard University, Organizer

Stelios Michalopoulos, Tufts University, and Elias Papaioannou, Dartmouth College
The Long-Run Effects of the Scramble for Africa

Michalopoulos and Papaioannou examine the economic consequences of the partitioning of Africa among European powers in the late 19th century, a process historically known as the scramble for Africa. First, using information on the spatial distribution of African ethnicities before colonization, they establish that border drawing was largely arbitrary. Apart from the land mass and water area of an ethnicity's historical homeland, no other geographic, ecological, historical, and ethnic-specific trait predicts which ethnic groups have been partitioned by the national borders. Second, using data on the location of civil conflicts after independence, they show that compared to ethnicities that have not been affected by the border design, partitioned ethnic groups have suffered significantly more, longer, and more devastating civil wars. Third, they find that economic development - as reflected by satellite data on light density at night -- is systematically lower in the historical homeland of partitioned ethnicities. These results are robust to a rich set of controls at a fine level and to the inclusion of country and ethnic-family fixed-effects. The regressions thus identify a sizable causal negative effect of the scramble for Africa on comparative regional development.

Roland Benabou, Princeton University and NBER, and Jean Tirole, Institut d'Economie Industrielle
Laws and Norms

Benabou and Tirole analyze how private decisions and public policies are shaped by personal and societal preferences (values), material or other explicit incentives (laws), and social sanctions or rewards (norms). They first examine how honor, stigma, and social norms arise from individuals' behaviors and inferences, and how they interact with material incentives. They then characterize optimal incentive-setting in the presence of norms, in particular deriving appropriately modified versions of Pigou and Ramsey taxation. Incorporating agents' imperfect knowledge of the distribution of preferences leads to several new questions. The first is social psychologists' practice of norms-based interventions, namely campaigns and messages that seek to alter people's perceptions of what constitutes normal behavior or values among their peers. The model here makes clear how such interventions operate, but also how their effectiveness is limited by a credibility problem, particularly when the descriptive and prescriptive norms conflict. The next question is the expressive role of law. The choices of legislators and other principals naturally reflect their knowledge of societal preferences, and these same community standards are what shapes social judgments and moral sentiments. Setting law thus means both imposing material incentives and sending a message about society's values, and hence about the norms that different behaviors are likely to encounter. The analysis, combining an informed principal with individually signaling agents, makes precise the notion of expressive law, determining in particular when a weakening or a strengthening of incentives is appropriated. Pushing this logic further, the paper also sheds light on why societies are resistant to economists' messages, and why they renounce certain policies, such as cruel and unusual punishment, irrespective of effectiveness considerations, in order to express their being civilized.

Nicola Gennaioli, CREI; Rafael La Porta, Dartmouth College and NBER; Florencio Lopez-de-Silanes, EDHEC Business School and NBER; and Andrei Shleifer, Harvard University and NBER
Human Capital and Regional Development

Gennaioli, La Porta, Lopez-de-Silanes, and Shleifer investigate the determinants of regional development using a newly constructed database of 1569 sub-national regions from 110 countries covering 74 percent of the world's surface and 96 percent of its GDP. They combine the cross-regional analysis of geographic, institutional, cultural, and human capital determinants of regional development with an examination of labor productivity and wages in several thousand establishments located in these regions. To organize the discussion, they present a new model of regional development that introduces into a standard migration framework elements of both the Lucas (1978) model of the allocation of talent between entrepreneurship and work and the Lucas (1988) model of human capital externalities. The evidence points to the paramount importance of human capital in accounting for regional differences in development, but also suggests that both entrepreneurial inputs and human capital externalities are critical to understanding the data.

Alberto Alesina and Nathan Nunn, Harvard University and NBER, and Paola Giuliano, University of California, Los Angeles and NBER

On the Origins of Gender Roles: Women and the Plough(NBER Working Paper No. 16718)

Alesina, Giuliano, and Nunn seek to better understand the historic origins of current differences in norms and beliefs about the appropriate role of women in society. They test the hypothesis that traditional agricultural practices influenced the historic gender division of labor and the evolution and persistence of gender norms. They find that, consistent with existing hypotheses, the descendants of pre-industrial societies that practiced plough agriculture have lower rates of female participation in the work place, in politics, and in entrepreneurial activities today, as well as attitudes reflecting gender inequality. They identify the causal impact of traditional plough use on gender norms today by exploiting variation in the historic geo-climatic suitability of the environment for growing crops that differentially benefited from the adoption of the plough. The IV estimates, based on this variation, support the findings from OLS. To isolate the importance of cultural transmission as a mechanism, they examine female labor force participation of second generation immigrants living within the United States.

Irena Grosfeld and Ekaterina Zhuravskaya, Paris School of Economics, and Alexander Rodnyansky, CEFIR
Persistent Anti-Market Culture: A Legacy of the Pale of Settlement and of the Holocaust

Grosfeld, Rodnyansky, and Zhuravskaya investigate the long-term effects of the important presence of Jews in Eastern Europe before the Second World War and their disappearance during the Holocaust. The Pale of Settlement, the area which Jewish residents were confined to in the Russian Empire, is used as a source of exogenous variation in the size of the Jewish population before the Second World War. Based on election and survey data, the authors find that current residents of the Pale, compared to their counterparts outside the Pale, vote more for socialist anti-market parties, have lower support for the market economy and democracy, are less engaged in entrepreneurship, but exhibit higher levels of trust. At the same time, the Pale has no lasting effects on average consumption, income, and education levels. Regression discontinuity at the Pale border helps identification. The researchers show that the effect of the Pale is related to the former presence of Jews rather than to the inflow of new migrant population into the formerly-Jewish areas. They suggest a possible mechanism and present evidence consistent with it: the non-Jewish population, at the time when two groups lived together side-by-side, developed a persistent anti-market culture and bonding trust, rooted in ethnic hatred towards Jews. They show that, consistent with the mechanism, current residents of towns closer to places of pogroms exhibit higher trust and anti-market attitudes, even controlling for the historical share of Jews in the population and the Pale.

Daron Acemoglu, MIT and NBER; Aleh Tsyvinski, Yale University and NBER; and Pierre Yared, Columbia University

A Dynamic Theory of Resource Wars(NBER Working Paper No. 16682)

Acemoglu, Tsyvinski, and Yared develop a dynamic theory of resource wars and study the conditions under which such wars can be prevented. The interaction between the scarcity of resources and the incentives for war in the presence of limited commitment is at the center of their theory. They show that a key parameter determining the incentives for war is the elasticity of demand. First they identify a novel externality that can precipitate war: price-taking firms fail to internalize the impact of their extraction on military action. In the case of inelastic resource demand, war incentives increase over time and war may become inevitable. Second, in some situations, regulation of prices and quantities by the resource-rich country can prevent war, and when this is the case, there will also be intertemporal distortions. In particular, resource extraction will tend to be slower than that prescribed by the Hotelling rule, which is the rate of extraction in the competitive environment. Third, because of limited commitment, such regulation also can precipitate war in some circumstances in which war is avoided in the competitive environment.

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