Culture and economics
I. Cultural change and Economic development,
Algan & Cahuc 09, AER 2010
Knack & Keefer [1997]: Positive correlation between Macroeconomic
outcomes and Trust [WVS]
Algan & Cahuc seek to identify the causal impact from trust to
development
-Instrumental variable method: variable that is correlated with trust and
get rid of reverse causality but no direct impact on macroeconomic
performance, not co-determined with macroeconomic performance.
Trust of second-generation Americans inherited from their country of origin:
instrument for the current trust in the home country
Inherited trust of two separate cohorts of Americans working in the 1950’s
and the 2000’s
Culture and Economics, A Survey
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Cultural change and Economic development,
Algan & Cahuc 09, AER 2010
General Social Survey (GSS): United States, 1977-2004 , Same question for
trust as the WVS
+ Country of origin: « From what countries or part of the world did your
ancestors come from? »
• Comparison of different groups compared to Americans of Swedish
ancestors:
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Inherited trust of Americans and trust in the home country
Inherited trust and GDP growth : cross-country and panel evidence
Inherited trust and GDP growth : cross-country and panel evidence
Inherited trust and GDP growth : cross-country and panel evidence
Inherited trust and GDP growth : cross-country and panel evidence
Quantifying the effect
II. Cultural Change
Di Tella, Galiani & Schargrodsky, QJE, 07: investigation of the role of
property rights in the formation of beliefs.
Endogeneity Issue ? No! natural experiment (Buenos Aires); some squatters
received by chance property rights; others did not.
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III. Fisman and Miguel, JPE, 07: UN officials civism and Legal Enforcement.
Pre 2002: No legal enforcement for UN officials
Post 2002: Legal enforcement
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IV. Regulation and Trust, Aghion,
Algan, Cahuc, and Shleifer (2008)
• Document a new correlation:
– Regulation is negatively correlated with trust
A simple theory
• Two way causality :
– Distrust -> Regulation: When individuals have low
trust in the civic behavior of other individuals,
they fear negative externalities and then vote for
more stringent regulations.
– Regulation -> Distrust: With higher regulation,
individuals have fewer incentives to trust others
• Model solved in class
V. Occupational choice and the spirit of
capitalism, Doepke and Zilibotti (2008)
• Why did the middle class benefit from the industrial
revolution, but not the poor nor the landowning elite?
• Common answer: the middle class has a different culture, in
particular it works harder
• Basic idea:
– Parents can invest in their children’s degree of patience
– Patience affects the children’s choice between current consumption
and savings/capital accumulation.
– Patience is more important in some occupations (skilled labor=middle
class) than in others (unskilled labor, elite)
• Here, culture=patience
• Model solved in class