Endogenous (In)Formal Institutions

52 Pages Posted: 20 Jul 2012 Last revised: 29 Mar 2018

Serra Boranbay

University of Mannheim

Carmine Guerriero

Department of Economics, University of Bologna

Multiple version iconThere are 2 versions of this paper

Date Written: March 25, 2018


Despite the overwhelming evidence pointing at the relevance of inclusive political institutions and a culture of cooperation, we still lack a framework that identifies both their origins and interaction. In a model in which an elite and a citizenry try to cooperate in sharing consumption risk and in investment, we show that the prospect of a sufficiently profitable investment pushes the elite to introduce more inclusive political institutions to convince the citizens that a sufficient part of its return will be shared via public spending. In addition, accumulation of culture rises with the severity of consumption risk at its moderate values and then drops at its high values making cheating too appealing. Finally, the citizenry may ``over-accumulate" culture to credibly commit to cooperate in investment when its value is or becomes so low to endanger inclusive political institutions. These predictions are consistent with the evolution of activity-specific geographic factors, the inclusiveness of political institutions, and the activity of the Cistercians and the Franciscans, which is our proxy for the citizenry's culture, in a panel of 90 European regions spanning the 1000-1600 period. Crucially, our estimates remain stable across several identification strategies.

Keywords: Geography, Culture, Democracy, Development

JEL Classification: O13, H10, Z10, O10

Suggested Citation

Boranbay, Serra and Guerriero, Carmine, Endogenous (In)Formal Institutions (March 25, 2018). Amsterdam Center for Law & Economics Working Paper No. 2012-04; Amsterdam Law School Research Paper No. 2012-79. Available at SSRN: https://ssrn.com/abstract=2112040 or http://dx.doi.org/10.2139/ssrn.2112040

Serra Boranbay

University of Mannheim ( email )

Universitaetsbibliothek Mannheim
Mannheim, 68131

Carmine Guerriero (Contact Author)

Department of Economics, University of Bologna ( email )

Strada Maggiore 45
Bologna, 40125

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