Endogenous (in)formal institutions |
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| Institution: | 1. Carnegie Mellon University, Qatar;2. University of Bologna, Strada Maggiore 45, Bologna 40125, Italy;1. Department of Agricultural and Applied Economics, University of Wisconsin-Madison, Madison, WI 53706, United States;2. Department of Economics, Middlebury College, Middlebury, VT 05753, United States;1. University of Notre Dame, USA;2. Australian National University, Australia;3. Northwestern University, Fudan University, Fanhai International School of Finance, NBER, BREAD, CEPR, USA;4. Yale University, USA;1. China Center for Human Capital and Labor Market Research, Central University of Finance and Economics, Beijing, China;2. National Bureau of Economic Research, Cambridge, MA, USA;3. Institute of Labor Union Studies, Beijing Federation of Trade Union Cadres College, Beijing, China;4. School of Economics, Georgia Institute of Technology, Atlanta, GA, USA;5. School of International Trade and Economics, University of International Business and Economics, Beijing, China;1. University of Strathclyde, 16 Richmond Street, Glasgow, G1 1XQ, United Kingdom;2. University of Dundee, 3 Perth Road, Dundee, DD1 3BH, United Kingdom;1. Louisiana State University, Baton Rouge, LA, USA;2. NBER, Cambridge, MA, USA |
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| Abstract: | The paper provides a formal framework identifying both the origins and interaction of a culture of cooperation and inclusive political institutions. When elite members and citizens try to cooperate in sharing consumption risk and joint investment, the elite enacts democracy to convince the citizens that a sufficient part of the investment return will be shared via public spending and thus, they should cooperate. In addition, cultural accumulation rises with the severity of consumption risk at its moderate values and then drops at its high values making cheating too appealing. Finally, the citizens may over-accumulate culture to credibly commit to cooperating in investment at its intermediate values threatening democracy. These predictions are consistent with novel data on 90 European historical regions spanning the 1000–1600 period. Reforms towards tighter constraints on the elite’s power were driven by the potential for Mediterranean trades. Moreover, the activity of both the Cistercians and the Franciscans, our proxy for the citizens’ culture, has an inverted U-shaped link with the temperature volatility. Finally, the shift of long-distance trades towards the Atlantic fostered the Franciscans’ spread in the Mediterranean, where they organized micro-credit activities reinforcing the citizenry-elite partnerships. |
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