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  3. American Economic Journal: Microeconomics
  4. November 2017
  5. Persistence and Change in Culture and Institutions under Autarchy, Trade, and Factor Mobility

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

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

  • Marianna Belloc
  • Samuel Bowles
American Economic Journal: Microeconomics
vol. 9, no. 4, November 2017
(pp. 245–76)
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Abstract

Differences 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.

Citation

Belloc, Marianna, and Samuel Bowles. 2017. "Persistence and Change in Culture and Institutions under Autarchy, Trade, and Factor Mobility." American Economic Journal: Microeconomics, 9 (4): 245–76. DOI: 10.1257/mic.20160079

Additional Materials

JEL Classification

  • D02 Institutions: Design, Formation, Operations, and Impact
  • D86 Economics of Contract: Theory
  • F11 Neoclassical Models of Trade
  • F21 International Investment; Long-term Capital Movements
  • J41 Labor Contracts
  • O43 Institutions and Growth
  • Z13 Economic Sociology; Economic Anthropology; Language; Social and Economic Stratification
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