\Thesis" | 2015/4/30 | 16:45 | page i | #1 Essays on the Economics of Culture and Identity Vasiliki Fouka TESI DOCTORAL UPF / ANY 2015 DIRECTOR DE LA TESI Prof. Hans-Joachim Voth Departament d' Economia i Empresa \Thesis" | 2015/4/30 | 16:45 | page ii | #2 \Thesis" | 2015/4/30 | 16:45 | page iii | #3 To my father iii \Thesis" | 2015/4/30 | 16:45 | page iv | #4 \Thesis" | 2015/4/30 | 16:45 | page v | #5 ACKNOWLEDGEMENTS I would first like to thank my advisor, Hans-Joachim Voth, for his constant support and mentoring over the last five years. He has been for me an invaluable teacher, not just of research skills, but also, and most importantly, of those non- cognitive skills and attitudes so necessary for the completion of a PhD, for working in academia and for life in general: trust in one's self, perseverance and the habit of thinking broadly, before solving the inevitable constrained optimization problems. The comments of my readers, Albrecht Glitz, Stelios Michalopoulos and Luigi Pascali were crucial for turning my research proposal to a completed thesis. I am indebted to Ran Abramitzky, Alberto Alesina and Davide Cantoni for their comments on the job market paper. I also owe thanks to Nathan Nunn for hosting me at Harvard for a year. I would like to thank seminar participants in Brown, Harvard, Lucerne (SEA), Naxos (CRETE), Northwestern, NYU (NEWEPS3), Stanford, Toulouse (ESEM), UPF and Vanderbilt for their constructive feedback on different chapters of the dissertation. A big thanks to Marta Araque and Laura Agust´ı,for their accessibility and efficiency, which made every administrative step of the PhD easier. Thank you to Tanya, Bruno, and Ciccio, for sharing with me an office and six long years at UPF. To Andrea, Felipe and J¨orgfor sharing the preparation for the job market, to Thomas for his good energy and for always being a trustworthy hiking buddy and to all my fellow UPF students. Corina, Andreas, Egemen, Laura, Dileimy and Vicky, thank you for being great flatmates and friends and my window to the outside world. I owe so much to my family and friends, in Spain and in Greece, for being there for me throughout the PhD. A thank you to my parents, Nikos and Fotini and my brother, Xenophon, whose programming skills proved particularly useful for part of this thesis. My greatest thanks goes to Alain, who was involved in this thesis in more ways than anyone else. To say that I would not have completed the PhD without his help and our endless discussions would be an understatement. I thank him for his support, for making the process fun and, most of all, for constantly reminding me v \Thesis" | 2015/4/30 | 16:45 | page vi | #6 of the really important things in life. A final thank you to our daughter, Eleftheria, who arrived just in time for the defense. vi \Thesis" | 2015/4/30 | 16:45 | page vii | #7 Abstract This thesis examines how culture | in the sense of identity and preferences | re- lates to economic decision-making. The first chapter investigates how a prohibition of their native language in school affects the assimilation of German immigrants in the US in the early 20th century. I find that restrictive language policies pro- duce a backlash of ethnic identity, which is particularly pronounced among less assimilated immigrants. In the second chapter I examine the role of history and memory in shaping consumer decisions. I show that the share of German car sales in Greece drops during periods of conflict between the Greek and German gov- ernments, and that this drop is larger in areas of the country which suffered from German reprisals during World War II. The third chapter provides a theory on the origin of the preference for work. Combining agroclimatic and attitudinal survey data from Europe, I show that regions in which returns to labor in agriculture have historically been high place more value on work versus leisure today. Resumen En esta tesis se analiza el modo en qu´ela cultura | en el sentido de identidad y preferencias | est´arelacionada con la toma de decisiones econ´omicas.El primer cap´ıtuloinvestiga c´omola prohibici´onde su lengua materna en la escuela afecta la asimilaci´onde los inmigrantes alemanes en los EE.UU. a principios del siglo XX. Los resultados demuestran que las pol´ıticasling¨u´ısticasrestrictivas producen una reacci´oncontraria al prop´ositode la misma en cuanto a la identidad ´etnica, que es particularmente pronunciada entre los inmigrantes menos asimilados. En el segundo cap´ıtuloexamino como la historia y la memoria hist´oricaafectan las decisiones de consumo. Muestro que la proporci´onde las ventas de autom´oviles alemanes en Grecia cae durante los per´ıodos de conflicto entre los gobiernos griego y alem´an,y que esta ca´ıdaes mayor en las zonas del pa´ısque sufrieron represalias alemanas durante la Segunda Guerra Mundial. En el tercer cap´ıtulodesarrollo una teor´ıasobre el origen de la preferencia sobre el trabajo. Combinando los datos de encuestas agroclim´aticasy de actitud de Europa, muestro que las regiones en las que los retornos del trabajo en agricultura han sido altos hist´oricamente, hoy en d´ıaponen m´asvalor al trabajo con respeto al ocio. vii \Thesis" | 2015/4/30 | 16:45 | page viii | #8 \Thesis" | 2015/4/30 | 16:45 | page ix | #9 PREFACE Until recently, culture | in the sense of preferences, collective beliefs and social norms formed through parental socialization and history | featured very little in the topics of interest of economists. The vagueness of its definition, and the reluctance of the discipline to touch fundamentals of economic models such as preferences, left the study of culture to other social sciences, better equiped to deal with it, such as psychology or anthropology. Owing to Greif (1994), and after him Akerlof and Kranton (2000) and Bisin and Verdier (2000), economists not only started developing ways of thinking about culture, but also managed to show that economic models are a good way of understanding how culture is both shaped by the economic environment and is itself a driver of economic behavior. Despite the burgeoning literature that ensued on the study of culture, we still have a long way to go in understanding where culture comes from and how it matters for economic outcomes. Empirically identifying the roots of attitudes and norms, or isolating their effects on behavior from other proximate factors is challenging. A number of studies document convincingly the persistence of culture over very long periods of time. But what makes this persistence weaken, and when the effect of history on behavior becomes more or less pronounced is relatively less understood. The assimilation of immigrants in the host country is one of the prime examples of cultural change, and I exploit such a context in the first chapter of this thesis in order to investigate the movements of one of the defining characteristics of culture: ethnic identity. My precise question is when and to which direction ethnic identity responds to state integration efforts. I focus on the case study of German immigrants to the US and their experiences during the First World War. The anti-German sentiment of the period led many US states to place restrictions on the use of the German language in elementary schools. I compare assimilation outcomes of German-American children exposed to language-banning legislation at school with those of their peers in older cohorts and in states that did not ban the German language, in a difference-in-differences framework. To do this, I construct a new data set of census records linked over consecutive census years and combine this with data on World War II enlistments. I find that restrictive language laws ix \Thesis" | 2015/4/30 | 16:45 | page x | #10 produce a backlash of German ethnic identity, particularly for individuals coming from homogeneous German families. These German-Americans were more likely to marry within their ethnic group and choose decidedly German names for their offspring. They were also less likely to volunteer in the US Army during World War II. This backlash effect is more pronounced in places with a small German minority and places where the initial sense of German identity, as proxied by the strength of the Lutheran church and the presence of Lutheran parochial schools, was stronger. These results are compatible with a model of cultural transmission of identity, in which parental investment overcompensates for the direct effects of assimilation policies. In the second chapter, coauthored with Hans-Joachim Voth, I investigate how historical memory affects consumer choices in the context of the Greek debt crisis. Combining an index of political sentiment constructed from over 60,000 newspaper articles with historical maps on German war crimes in Greece during World War II, we find that German car sales drop in response to German-Greek political acri- mony, especially in areas with a memory of past German atrocities. We conclude that cultural aversion was a key determinant of purchasing behavior, and that memories of past conflict can affect economic choices in a time-varying fashion. These findings are compatible with behavioral models emphasizing the importance of salience for individual decision-making. In the third chapter, coauthored with Alain Schlaepfer, I shift my focus from the effects to the origins of culture. We develop a theoretical model of endogenous preference formation to explain how labor intensive production structures lead societies to place more value on work versus leisure. Our hypothesis is that a society's work ethic depends on the role that labor has played in it historically, as an input in agricultural production: societies that have for centuries depended on the cultivation of crops with a high equilibrium labor to land ratio will work longer hours and develop a preference for working hard.