1. Canan KORKMAZ Mustafa SERBEST Mert AKTAŞ
Cultural Beliefs and Organization of the Society: A theoretical Reflection on Collectivist and Individualist Societies Avner Grief
Canan KORKMAZ
Mustafa SERBEST
Mert AKTAŞ

2. What effects a society’s economic performance and growth?
Cultural Beliefs Societal Organization
Organization of the society:
Legal, economic, political, social and moral enforcement institutions
Social constructs, information transformation and coordination mechanisms

3. Why do societies fail to adopt the organization of more economically successful ones?

4. Collectivist vs. Individualist
GROWTH LEVEL
DEVELOPING
DEVELOPED
SOCIAL STRUCTURE
SEGREGATED
INTEGRATED
INFORMATION TRANSMISSION
INTERACTION BETWEEN PEOPLE IN SAME GROUP
INTERACTION AMONG PEOPLE FROM DIFFERENT GROUPS
CONTRACT ENFORCEMENT
‘INFORMAL’ INSTITUTIONS
SPECIALIZED ORGANIZATIONS
RESEMBLES
11TH Century- MAGHRIBI TRADERS
MUSLIM WORLD
12TH CENTURY
GENOESE TRADERS
LATIN WORLD

5. Cultural Beliefs
The ideas and thoughts common to several individuals that govern interaction- between these people, their gods and other groups.
Integral part of institutions and the evolution and persistence of diverse social organizations

6. CULTURAL BELIEFS INFLUENCE:
Expectations of ability to gain
Societal organization
Moral enforcement mechanisms

7. The Maghribis and Genoese faced:
A similar environment
Comparable naval technology
Similar goods
Their efficiency of trade depended on their ability to mitigate an organizational problem related to a specific problem, the provision of the services required for handling a merchant’s goods abroad
Trade was based on agency relations among non-family members

8. Medieval Trade Routes

9. AGENCY RELATIONS
How each group mitigated the merchant- agent commitment problem
One-Side Prisoner’s Dilemma game
M- merchants, A-Agents (M<A)
Infinite number of periods in a game
β- time discount factor of agents
Φu – reservation utility of agents
1 Merchant 1 Agent
Matching is random

10. A merchant who does not hire an agent receives κ>0
A merchant who hires an agent decides what wage (W>0) to offer to the agent
An employed agent decides to whether to be honest or to cheat A
h c
γ-w (Merchant’s payoff)
w α>Φu ( Agent’s payoff) γ

11. σ – Probability that a merchant is forced to terminate agency relations
In neither group was wage a function of political or legal considerations

12. Proposition 1
hh -The probability that an honest agent will will be hired again
hc - The probability that a cheater agent will be hired again
The lowest wage for which agent’s best response is to play is;
W*=w(β, hh, hc, σ,φu, α) > φu

13. Agency Relations- Individualist vs Collectivist Societies
A merchant hires an unemployed agent for a wage W*, whom he rehires as long as cheating or forced separation does not occur.
Under Individualist Strategy- a merchant randomly hires an agent
Under Collectivist Strategy- a merchant randomly hires among the unemployed agents who have never cheated

14. Proposition 2
Assuming there is an perfect equilibrium on the one side prisoner’s dilemma game (γ -κ≥0)
Under Individualist Strategy;
hh = hc
Under Collectivist Strategy
hh > hc

15. Investing in Information
Investing requires ∧ each period, in return for which the merchant learns the private information of all agents
Under the individualist equilibrium; history has no value- no merchant will invest
Under the collectivist equilibrium; merchants will invest since the optimal wage is a function of an agent’s history

16. Proposition 3
W*-i – Minimum wage that merchant i has to pay his agent if only he does not invest
W*c - Equilibrium wage under the collectivist strategy in the full information game
W*-i - W*c ≥ ∧
Invest & Collectivist Strategy is an equilibrium
Not to invest & Individualist Strategy is an equilibrium

17. Origins of Diverse Cultural Beliefs
Maghribis
Musta’ribun, Umma
All Israel is responsibe for all members
Immigrant group
Genoese
Christianity
Establisment contract
High level of immigration to Genoa

18. Punishment and Investment in Information
Magribis
Informative letters
Small group, common language and religion
Collective punishment
Genoese
Jelaous of their business secrets
Individual punishment

19. Social Structures Two types 1) Vertical social structure
Merchant or agent
2) Horizontal social structure
Merchant and agent

20. Social Structures Horizontal Capital as a bond
Cheating decreases the future return on capital
Collective cultural beliefs
Vertical
Cheating does not decrease capital’s rate of return
High reservation utility of merchants
Individualist cultural beliefs

21. 𝑉 ℎ 𝑎 + (𝛾− 𝑊 ∗ ) (1−𝛽) ≥𝛼+𝛾− 𝑊 ∗ + 𝑉 𝑐 𝑚 + 𝑉 𝑐 𝑎
For preventing a merchant from cheating
𝑉 ℎ 𝑎 + (𝛾− 𝑊 ∗ ) (1−𝛽) ≥𝛼+𝛾− 𝑊 ∗ + 𝑉 𝑐 𝑚 + 𝑉 𝑐 𝑎
For preventing an agent from cheating
𝑉 ℎ 𝑎 ≥𝛼+ 𝑉 𝑐 𝑎
For collectivist merchant
(𝛾− 𝑊 ∗ ) (1−𝛽) >𝛾− 𝑊 ∗ + 𝑉 𝑐 𝑚
For individualist merchant
(𝛾− 𝑊 ∗ ) (1−𝛽) =𝛾− 𝑊 ∗ + 𝑉 𝑐 𝑚

22. Social Structures of Magribis and Genoeses
No mechant and agent classes
Agency measure
70% is between 0 and1
Partnerships and formal friendships
Genoese
Merchant class : nobles and rich men
Agent class: poor men
Agency measure
11% is between 0 and 1
Commenda contracts
Agency Measure : 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠 𝑎 𝑡𝑟𝑎𝑑𝑒𝑟 𝑜𝑝𝑒𝑟𝑎𝑡𝑒𝑠 𝑎𝑠 𝑎𝑔𝑒𝑛𝑡 𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑡𝑖𝑚𝑒𝑠 𝑎 𝑡𝑟𝑎𝑑𝑒𝑟 𝑜𝑝𝑒𝑟𝑎𝑡𝑒𝑠 𝑎𝑠 𝑎𝑔𝑒𝑛𝑡 𝑜𝑟 𝑚𝑒𝑟𝑐ℎ𝑎𝑛𝑡

23. Wealth Distribution - Vertical
Better opportunity for upward mobility
Declining concentration of wealth over the time
Growing wealth of the commoners
Demand greater say in politics

24. Social Structures Two types 1) Segregated society
Trade only with each other
2) Integrated society
Trade with other groups

25. Social Structures of Magribis and Genoeses
Segregated
Only 2 out of 97 were Muslim
Not religious, also didn’t traded with Italian Jewishes.
Forced by Egypt ruler to trade and vanished
Genoese
Integrated
% 18.3 of agents were non-Genoese

26. Social Structures
Different responses to same exogenous change in the rules of game
To hire an agent from own economy, who sails or emigrates abroad
To hire an agent from native economy
Efficiency against profitability

27. An Example Two identical economies integrated
μ : probability of collective punishment to intereconomy relations
η : probability of collective punishment to a honest agent in intereconomy relations

28. Proposition 4
If prechange economies are collectivist, new economy will be segregated if μ ≠ 1 and if η ≠ 0.
If prechange economies are individualist, new economy will be integrated for all η and μ.

29. Relations between a collectivist and an individualist economy
A collectivist merchants doesn’t initiate intereconomy relations.
Wages will increase.
An individual merchant may find intereconomy relations optimal.
If η = 0 and μ = 0.

30. Proposition 5
For any η and μ, collectivist merchants will not initiate intereconomy relations.
Necessary condition for segragation is μ<η.
Sufficient condition for integration is μ≥η.

31. Organizational Evolution
Collectivist cultural beliefs led to:
Self-enforcing collective punishment
Horizontal agency relations
Segregation
In-group social communication network

32. Organizational Evolution
Individualist cultural beliefs led to:
Vertical and integrated social structure
Relatively low level of communication
No economic self-enforcing collective punishment

33. Legal System Maghribis Genoese Informal contracts
Informal code of conduct
Attempts to resolve disputes informally
Genoese
Extensive legal system for the contracts
Customary contract law
Permanent courts for trade affairs

34. Organizational Structure
When the number of traders was low, each trader’s future gain was sufficient to respect each other’s decisions.
When it is high, an enforcement mechanism is required ‘‘Embargo’’
Compliance with embargo decisions:
-Informal enforcement mechanisms in Maghribi society
-Specialized organizations in Genoese

35. Example: Informal Enforcement Mechanism
The Muslim ruler of Sicily abused the rights of some Maghribi traders.
An embargo was organized with an informal letter.
‘‘Hold the hands of our friends not to send to Sicily even one dirham.’’
Sailing to Tunisia, not to Sicily.

36. Example: Formal Enforcement Mechanism
In 1340, Genoese traders were abused by the ruler of Tabriz.
A ‘‘devetum’’ was declared against the city.
A Genoese merchant fell sick in a travel to China and turned back by the shortest route.
Because he passed through Tabriz, he was exposed to justify it in the formal court.

37. Shipping process in the Genoese
A receipt for the goods that the merchant deposited: bill of lading
Sent by the merchant to his overseas agent.
The letter of advice was sent after the ship arrived by the ship’s scribe to the consignee.

38. Shipping process in the Maghribis
Rejected the bill and solved the organizational problems in informal ways.
Handshake
Trust
Watching each other’s goods

39. Differences in organizations related to agency relations
Proposition 1: probability of forced separation(σ) , optimal wage
Prob. of rehiring cheaters and prob. of rehiring honest agents , gain from changing the prob. of forced separation
Collectivist merchants have no incentive to reduce the forced separation.
Individualists established organizations to reduce it.

40. Evolution of family relations
The ongoing business was restricted with the father’s lifetime in the Maghribis.
Emerging family firms among the Genoese in the 13th century.

41. Uneven development of the two societies
Maghribis: segregation, collective punishment, horizontal relations no gain by introducing organizations
Genoese:
-individualist cultural beliefs increased security of employment growing family firms with infinite life- span

42. Family Firms Modern companies
Organizational macroinventions of the family firms
Microinventions among the Italians
Sale of the shares to the non-family members
Tradable share required a suitable market
Stock market were developed
Information transmission, accounting procedures

43. Conclusions
Two society constrained by the same technology and environment and facing the same organizational problem
But different cultural, political and social histories.
Diverse trajectories of societal organization related to different cultural beliefs

44. Conclusions Maghribi Society: Collectivist cultural beliefs
Segregation, horizontal interactions, share of information
A societal organization based on beliefs and trust

45. Conclusions Genoese Society: Individualist beliefs
Low level of communication
Second party enforcement mechanism
Societal structure based on legal, political and economic organization

46. Efficiency of the two systems
The collectivist system is more efficient in supporting intraeconomy agency relations
However, Italians drove the Muslim traders out of the Mediterranean
Maghribis symbolize modern developing countries whereas Genoese symbolize the developed West
In the long run, developed institutions and efficiency gains in the Genoese society

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