On the Coevolution of Individualism and Institutions

59 Pages Posted: 27 Jun 2022 Last revised: 26 Jul 2023

See all articles by Israel Eruchimovitch

Israel Eruchimovitch

University of Haifa

Moti Michaeli

University of Haifa

Assaf Sarid

University of Haifa

Date Written: June 19, 2022

Abstract

To unravel the roots of the relationship between the Individualism-Collectivism dimension of culture (IC) and market-supporting institutions, we develop a model where the two interact and coevolve. IC and institutions are related indirectly via social organization: agents settle either in the Town, a loose organization where they work independently, or in the Clan, a cohesive organization where they engage in collective work. The town's relative economic potential positively affects the town's size and institutional quality. A larger town then renders society more individualistic, which attracts even more agents to the town and improves its institutional quality. The resulting positive feedback loop drives societies toward different steady states. If the town's relative economic potential is sufficiently high, the society converges to a steady state with a completely individualistic culture, high institutional quality, and a large town. Otherwise, the society converges to a steady state with a completely collectivistic culture, weak institutions, and a large clan. We conclude that contemporary IC and institutions exhibit path dependence and are thus related to the historical exogenous conditions in each region. Using current and historical data, we provide empirical evidence supporting our model. In addition, we apply the model to discuss the historical divergence between China and Europe.

Keywords: Economic History, Comparative Development, Culture, Institutions

JEL Classification: O17, P48, Z10

Suggested Citation

Eruchimovitch, Israel and Michaeli, Moti and Sarid, Assaf, On the Coevolution of Individualism and Institutions (June 19, 2022). Available at SSRN: https://ssrn.com/abstract=4140654 or http://dx.doi.org/10.2139/ssrn.4140654

Israel Eruchimovitch

University of Haifa ( email )

Mount Carmel
Haifa, 31905
Israel

Moti Michaeli

University of Haifa ( email )

Mount Carmel
Haifa, 31905
Israel

Assaf Sarid (Contact Author)

University of Haifa ( email )

Mount Carmel
Haifa, 31905
Israel

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