institutions, culture and economic development

I am currently taking a class taught by Avner Greif, an economist/economic historian at Stanford in the tradition of New Institutional Economics. The class introduces ideas about economic development from a perspective that does not get much attention from economists, i.e. culture and its impact on long-run institutional development.

In one of the readings Tabellini argues that:

Well functioning legal institutions breed good values, since legal enforcement is particularly relevant between unrelated individuals. …… better informal enforcement sustained by ongoing relations in a closed network may be counterproductive for values.

Thus, the model predicts that clan based societies develop very different value systems compared to modern societies that rely on the abstract rule of law.

That’s in The Scope of Cooperation.

The paper provides a model of the recursive interaction between good institutions and culture. The scope of cooperation and interaction matters for institutional and economic outcomes. Clannishness, whether in Southern Italy or Mogadishu, is bad for economic development.

But you need a functional state system for people to be able to even contemplate abandoning the insurance scheme that is the clan. The model predicts two steady-state equilibria. Institutionally speaking, you are either Botswana or Chad.

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