Endogenous (In)Formal Institutions
University of Amsterdam - Amsterdam Center for Law & Economics (ACLE); University of Amsterdam
University of Mannheim
March 1, 2013
Despite the substantial evidence documenting the relevance of democracy and a culture of cooperation, we still lack a framework that identifies their origins and interaction. In a model where citizens and elite members try to share consumption risk and cooperate in investment, we show that the elite's willingness to grant democracy is mainly driven by investment-specific factors, and accumulation of culture has an inverse U-shaped relationship with the forces aggravating consumption risk. Also, shocks shrinking investment surplus can push the citizens to over-invest in culture to credibly commit to future cooperation and so preserve democracy. This is consistent with the geography and the evolution of monasticism and politics in Medieval Europe.
Number of Pages in PDF File: 45
Keywords: Geography, Culture, Democracy, Development
JEL Classification: 013, H10, Z10, O10working papers series
Date posted: July 11, 2012 ; Last revised: March 3, 2013
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