On the Joint Evolution of Culture and Institutions
Explanations of economic growth and prosperity commonly identify a unique causal effect, e.g., institutions, culture, human capital, geography. In this paper we provide instead a theoretical modeling of the interaction between culture and institutions and their effects on economic activity. We characterize conditions on the socio-economic environment such that culture and institutions complement (resp. substitute) each other, giving rise to a multiplier effect which amplifies (resp. dampens) their combined ability to spur economic activity. We show how the joint dynamics of culture and institutions may display interesting non-ergodic behavior, hysteresis, oscillations, and comparative dynamics. Finally, in specific example societies, we study how culture and institutions interact to determine the sustainability of extractive societies as well as the formation of civic capital and of legal systems protecting property rights.
Thanks to Alberto Alesina, Gary Becker, Georgy Egorov, Luigi Guiso, David Levine, Massimo Morelli, Nicola Persico, Louis Putterman, Kenneth Shepsle, Shlomo Weber, and the many others we spoke with about this paper. We have presented the paper widely before writing it and we thank all the audiences for help, suggestions, and support. This research has been undertaken under financial support from the ERC Advanced Grant TECTACOM n324004. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.