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Endogenous (In)Formal Institutions

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  • Guerriero, Carmine
  • Boranbay, Serra

Abstract

Despite the huge evidence documenting the relevance of inclusive political institutions and a culture of cooperation, we still lack a framework that identifies their origins and interaction. In a model in which an elite and a citizenry try to cooperate in consumption risk-sharing and investment, we show that a rise in the investment value encourages the elite to introduce more inclusive political institutions to convince the citizenry that a sufficient part of the returns on joint investments will be shared. In addition, accumulation of culture rises with the severity of consumption risk if this is not too large and thus cheating is not too appealing. Finally, the citizenry may over-accumulate culture to credibly commit to cooperate in investment when its value falls and so inclusive political institutions are at risk. These predictions are consistent with the evolution of activity-specific geographic factors, monasticism, and political institutions in a panel of 90 European regions spanning the 1000-1600 period. Evidence from several identification strategies suggests that the relationships we uncover are causal.

Suggested Citation

  • Guerriero, Carmine & Boranbay, Serra, 2012. "Endogenous (In)Formal Institutions," MPRA Paper 71028, University Library of Munich, Germany, revised 22 Apr 2016.
  • Handle: RePEc:pra:mprapa:71028
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    Cited by:

    1. Giuseppe Dari-Mattiacci & Carmine Guerriero & Zhenxing Huang, 2016. "The Property-Contract Balance," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 172(1), pages 40-64, March.
    2. Carmine Guerriero, 2020. "Endogenous Institutions and Economic Outcomes," Economica, London School of Economics and Political Science, vol. 87(346), pages 364-405, April.
    3. de Oliveira, Guilherme & Guerriero, Carmine, 2018. "Extractive states: The case of the Italian unification," International Review of Law and Economics, Elsevier, vol. 56(C), pages 142-159.
    4. Lewis Davis, 2016. "Individual Responsibility and Economic Development: Evidence from Rainfall Data," Kyklos, Wiley Blackwell, vol. 69(3), pages 426-470, August.
    5. Guerriero, Carmine, 2016. "Endogenous legal traditions," International Review of Law and Economics, Elsevier, vol. 46(C), pages 49-69.
    6. Carmine Guerriero, 2016. "Endogenous Property Rights," Journal of Law and Economics, University of Chicago Press, vol. 59(2), pages 313-358.
    7. Crettez, Bertrand & Deffains, Bruno & Musy, Olivier, 2014. "Legal convergence and endogenous preferences," International Review of Law and Economics, Elsevier, vol. 39(C), pages 20-27.

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    More about this item

    Keywords

    Geography; Democracy; Culture; Development.;
    All these keywords.

    JEL classification:

    • H1 - Public Economics - - Structure and Scope of Government
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • Z1 - Other Special Topics - - Cultural Economics

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