Culture and economics

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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:

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

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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.

II. Cultural Change

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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

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