Culture

Question 1

What is culture in the context of economic development?

Answer 1

Sset of shared beliefs, values, norms, attitudes, and rules-of-thumb that shape how individuals and groups behave

Question 2

Culture and Contract Enforcement – Key Mechanisms

Answer 2

1. Emotion / Culture of Honor
2. Social Networks & Belief Systems (face collective punishment from the network)
3. Norms

• Internalized norms: Individuals feel guilt when cheating—psychological self-enforcement.
• External norms: Fear of shame, ostracism, and social sanctions deters cheating.

4. Formal Institutions / Legal System (courts and laws)

Question 3

Korean Air Flight 801 crash in 1997

Answer 3

Cause: Captain’s failure to execute a nonprecision approach and the crew’s failure to monitor and correct him.
High power distance: Junior crew members did not question or correct the captain—showing how cultural hierarchy can lead to fatal errors.

Question 4

How does Michalapoulos and Papaioannou (2014) illustrate that culture affect the operation of Institutions?

Don’t understand :(

Answer 4

Data: 500,000+ grid cells covering regions across Africa

Method: Compare culturally similar communities on either side of a border to see how national institutions affect development.

Findings: Institutions matter not only across countries—but within countries too

• Same ethnic group + different institutions → different development outcomes
• In kinship-based or collectivist cultures, people may rely more on traditional leaders or informal norms than on courts or bureaucracies.
• In areas with cultural histories of low trust (e.g., due to the slave trade), formal institutions are less respected or used.

Cultural preferences for hierarchy or communal enforcement can determine whether institutions are centralised, participatory, or bypassed.

Question 5

How does Greif (1994) use the merchant-agent problem to show the role of cultural beliefs in economic organization?

Answer 5

Data: trade records to see how societies organised trade

• Maghribi traders (collectivist)
• Genoese traders (individualist)

Individualists: bilateral punishment
* Rely on formal institutions and personal contracts.
* Build vertical relationships (wealthy merchants hire poorer agents).
* If an agent cheats one merchant, only that merchant refuses to rehire the agent in the future.

Collectivitst: group-based punishment
* Rely on informal group enforcement and reputation within tight-knit ethnic/religious networks.
* Build horizontal relationships where individuals serve both as merchants and agents.
* If an agent cheats a merchant, all other merchants in the group refuse to deal with the agent, and anyone who does deal with him is also boycotted.

Question 6

How can culture help enforce contracts where formal institutions are weak?

Answer 6

• Internal norms (guilt, conscience)
• Social networks (group punishment)
• Reputation systems
• Belief systems and values (e.g., religious or moral codes)