Persistence and Change in Culture and Institutions under Autarchy, Trade, and Factor Mobility†

Persistence and Change in Culture and Institutions under Autarchy, Trade, and Factor Mobility† AbstractDifferences among nations in culture (preferences including social norms) and institutions (contracts) may result in specialization and gains from trade even in the absence of exogenous differences in factor endowments or technologies. Goods differ in the kinds of contracts that are appropriate for their production, and so strategic complementarities between contracts and social norms may result in a multiplicity of cultural-institutional equilibria. The resulting country differences in culture and institutions provide the basis for comparative advantage. In our evolutionary model of endogenous preferences and institutions, transitions among persistent cultural-institutional configurations occur as a result of decentralized and uncoordinated contractual or behavioral innovations by employers or employees. We show that the gains from trade raise the cost of deviations from the prevailing culture and institutions. As a result, trade liberalization impedes decentralized transitions, even to Pareto-improving cultural-institutional configurations. International factor mobility has the opposite effect. (JEL D02, D86, F11, F21, J41, O43, Z13) http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png American Economic Journal: Microeconomics American Economic Association

Persistence and Change in Culture and Institutions under Autarchy, Trade, and Factor Mobility†

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Publisher
American Economic Association
Copyright
Copyright © 2017 © American Economic Association
ISSN
1945-7685
D.O.I.
10.1257/mic.20160079
Publisher site
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Abstract

AbstractDifferences among nations in culture (preferences including social norms) and institutions (contracts) may result in specialization and gains from trade even in the absence of exogenous differences in factor endowments or technologies. Goods differ in the kinds of contracts that are appropriate for their production, and so strategic complementarities between contracts and social norms may result in a multiplicity of cultural-institutional equilibria. The resulting country differences in culture and institutions provide the basis for comparative advantage. In our evolutionary model of endogenous preferences and institutions, transitions among persistent cultural-institutional configurations occur as a result of decentralized and uncoordinated contractual or behavioral innovations by employers or employees. We show that the gains from trade raise the cost of deviations from the prevailing culture and institutions. As a result, trade liberalization impedes decentralized transitions, even to Pareto-improving cultural-institutional configurations. International factor mobility has the opposite effect. (JEL D02, D86, F11, F21, J41, O43, Z13)

Journal

American Economic Journal: MicroeconomicsAmerican Economic Association

Published: Nov 1, 2017

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