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The Effect of Culture on the Functioning of Institutions: Evidence from European Regions

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The Effect of Culture on the Functioning of Institutions: Evidence from European Regions A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Tabellini, Guido; Harari, Mariaflavia Article The Effect of Culture on the Functioning of Institutions: Evidence from European Regions CESifo DICE Report Provided in Cooperation with: Ifo Institute – Leibniz Institute for Economic Research at the University of Munich Suggested Citation: Tabellini, Guido; Harari, Mariaflavia (2009) : The Effect of Culture on the Functioning of Institutions: Evidence from European Regions, CESifo DICE Report, ISSN 1613-6373, ifo Institut für Wirtschaftsforschung an der Universität München, München, Vol. 07, Iss. 1, pp. 13-19 This Version is available at: http://hdl.handle.net/10419/166956 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Forum THE EFFECT OF CULTURE ON Clearly,the persistence in institutional outcomes can- not be fully explained by looking at formal institu- THE FUNCTIONING OF tions only: something else, besides institutional iner- INSTITUTIONS:EVIDENCE tia, must account for this legacy of history. FROM EUROPEAN REGIONS Political economy explains this persistence with refer- ence to the redistributive conflicts and economic in- centives of political and economic élites who shape in- MARIAFLAVIA HARARI* AND stitutions so as to preserve their status quo rents. However, economic incentives alone fail to explain GUIDO TABELLINI** several institutional failures: why does a civil lawsuit in Southern Italy last three times as much as in Northern Culture: the missing link? Italy,in spite of identical legislation and incentives,and similar resources? Why do rational voters keep voting An influential line of research starting with North for corrupt politicians? More generally, why is it pos- (1981) and continuing with Acemoglu, Johnson and sible to overcome the collective action problem, the Robinson (2001) has stressed the importance of dis- core of almost any form of political participation, in tant history as one of the main determinants of cur- some situations, but not in others? The problem is that rent economic development. In particular, economic while individual incentives play a crucial role in most backwardness has been identified as a by-product of economic situations, this is not the case in several po- a past history of despotism or slavery. But what is the litical situations, in which aggregate outcomes reflect channel through which distant history shapes current the actions of many atomistic individuals. Moreover, economic outcomes? inside government organizations, incentives are gen- erally weak, due to lack of competition. A widespread interpretation is “institutions”. How- ever, economic and policy outcomes are often much Besides purely economic incentives, we should de- more persistent than the institutions which are sup- vote our attention also to other relevant drivers of posed to shape them. Institutions, in fact, may change individual behavior, such as morality. One’s belief abruptly,and yet leave economic outcomes nearly un- about the behavior of other people, for example, ex- affected. Consider for example transitions from au- erts a strong influence on voters’ demands and on cit- tocracy to democracy and vice versa: while coups izens’ participation; one’s perception of what is right seem to bring about a pronounced deterioration in or wrong determines the extent of moral hazard in- economic outcomes, democratic transitions are not side public organizations. In other words, “culture”, associated with comparably large improvements. On by which we mean primarily normative values on the other hand, consider a country where political in- what is “right” or “wrong” and how one “ought” to be- stitutions have been the same for centuries. Within have in given circumstances, is likely to affect the that country, economic and policy outcomes may di- functioning of institutions. verge across regions; these differences can be traced back to different regional histories in the past, whose Values are largely transmitted vertically, from one legacy persists in spite of identical political and legal generation to the next, in a conservative mechanism institutions. In Italy, for instance, it is well known that which takes place mostly within the family, rather hospitals, courts, schools and local governments are than across unrelated individuals. As suggested also much less efficient in the South than in the North. by Roland (2004) and Guiso et al. (2006), such slow moving values can indeed be the “missing link” through which distant political history influences the * Research assistant at Bocconi University. ** Rector and professor of economics at Bocconi University. functioning of current institutions and current devel- 13 CESifo DICE Report 1/2009 Forum opment, and can explain the persistence of institu- day, in order to understand cultural differences be- tional outcomes. tween different countries or regions. Two stylized facts, discussed in detail in Tabellini The idea that generalized morality leads to better col- (2008), suggest that this is indeed the case. First, it lective outcomes has a long history in political science makes sense to talk about the quality of government and has recently been gaining grounds in economics as a general feature of countries: some countries are as well. The relevance of culture and morality to the governed “well” in many policy areas and others are functioning of institutions has been stressed amongst governed “poorly” also in many areas. This is con- others by Landes (1998) and Platteau (2000). A re- firmed by cross country data (Tabellini 2008), show- lated idea is that a civic culture and a well-educated ing that government failures and successes are corre- population are an important prerequisite to a well lated across many different policy dimensions. That functioning and stable democracy, as highlighted, in- policy distortions and government inefficiencies are ter alia, by Glaeser et al. (2006), and Persson and often clustered together seems to suggest that they Tabellini (2006). may have a common cause. Second, culture is slow moving: exploiting data on third generation immi- Generalized morality norms are likely to instill con- grants to the US, Tabellini (2008) shows that current fidence and respect for abstract principles such as the values, extrapolated by the World Value Surveys opin- rule of law, the respect for individual rights and for ion polls, reflect features of the country of origin of democratic procedures. Hence they are likely to in- the respondents’ ancestors. Similar results have also duce reciprocal cooperation and discourage free rid- been obtained by Guiso et al. (2006). This article re- ing, with virtuous consequences not only for the eco- views the main results in these recent contributions, nomic behavior of individuals but also for their par- drawing on Tabellini (2008; 2009). ticipation in the political and administrative life of their local communities.The latter is crucial to ensure an adequate provision of local public goods and to Values and institutional outcomes monitor political representatives or local administra- tors. Thus, generalized morality is conducive to well The first question to be addressed is which cultural functioning institutions through at least three chan- traits are especially important in explaining institu- nels: law enforcement is easier because citizens are tional outcomes, and in particular which ones are like- more likely to be law abiding (eg., less likely to cheat ly to induce well-functioning institutions. on taxes); bureaucrats are less corrupt; voters expect and demand higher standards of behavior from politi- One key contraposition is between values consistent cians, monitor public administrators more effectively with “limited” as opposed to “generalized” morality; and are more inclined to vote based on general social the distinction concerns the scope of application of welfare rather than personal benefit criteria. norms of good conduct: within a narrow group with which the individual identifies, or towards every- On the other hand, in societies where limited moral- body.In hierarchical societies, codes of good conduct ity is prevalent, individualism is mistrusted; the role tend to be confined to small circles of related people, for the state, as well as for parental education, is a re- outside which opportunistic and selfish behavior is pressive one: good behavior is deemed to result from regarded as natural and
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