1. Culture and economics

2. 2 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

3. 3 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:

4. Inherited trust of Americans and trust in the home country

5. Inherited trust and GDP growth : cross-country and panel evidence

9. Quantifying the effect

10. 10 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

11. 11 III. Fisman and Miguel, JPE, 07: UN officials civism and Legal Enforcement. Pre 2002: No legal enforcement for UN officialsPost 2002: Legal enforcement

12. IV. Regulation and Trust, Aghion, Algan, Cahuc, and Shleifer (2008) Document a new correlation: – Regulation is negatively correlated with trust

17. 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

18. 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