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Culturally Risk Averse? – A Model of Economic Growth with Endogenous Culture

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Mariko Klasing ()

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Abstract

This research studies the dynamic interplay between the evolution of cultural traits and the process of economic development. In particular, this paper shows how cultural attitudes, in this case differences in risk attitudes, influence economic decision making while at the same time illustrating how these attitudes endogenously change over time. In order to study this joint evolution of cultural and economic variables, an endogenous growth model is integrated with a cultural transmission mechanism along the lines of Bisin & Verdier. This provides us with a framework for the analysis of cultural attitudes that is both general and flexible so that it could be adapted for the study of culture in its full multidimensionality. The model predicts that higher economic success of more risk tolerant agents will over time lead to an increase in their representation in the society, which in turn will speed up economic growth. At the same time, though, the more risk averse type will not be completely eliminated. Using individual level data on risk attitudes across Chinese provinces, empirical evidence supporting this relationship between economic incentives and risk attitudes is provided.

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Paper provided by Department of Economics, University of St. Gallen in its series University of St. Gallen Department of Economics working paper series 2008 with number 2008-23.

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Length: 55 pages
Date of creation: Nov 2008
Date of revision:
Handle: RePEc:usg:dp2008:2008-23

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Related research
Keywords: Economic growth; cultural change; cultural transmission; risk aversion;

Find related papers by JEL classification:
A14 - General Economics and Teaching - - General Economics - - - Sociology of Economics
J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
O11 - Economic Development, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
Z10 - Other Special Topics - - Cultural Economics - - - General

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