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 How Do Values Influence the Functioning of Institutions and the Effects of Policies?

Abstract

Many recent contributions by economists have stressed the importance of culture in explaining economic and institutional outcomes. Taking this literature as a point of departure, we study three questions.

First, how do values and beliefs influence the functioning of government institutions? We combine recent insights from political economics with the idea that civic values matter through citizens’ political participation, such as voters’ behavior and “voice” activities. Our goal is to lay the foundations for an economic theory of clientelism. We then study empirically voters with different cultural traditions react to news of politicians’ dishonesty; and how alternative political institutions influence the selection of politicians depending on the cultural environment.

Second, what can be done to promote economic development and improve the functioning of government institutions in a society with lack of social capital and poor values? We study empirically two important policy tools. The first is transfers to poor localities from higher levels of governments. If civic values are deficient, transfers might reinforce clientelism. We test various possible channels for such adverse effects. Second, exploiting a “natural “experiment, we study the effects of decentralizing the selection of university professors.

Third, what are the main mechanisms of cultural transmission, and how do they interact with the external environment? We explore the role of schools, families and peers in the formation of values and beliefs, using a unique feature of the large PISA surveys. Schools are a main vehicles of cultural transmission. They are also a public service with a complex organization. We study how values and beliefs, the organization of schools and citizens’ voice interact with each other.

Much of our empirical analysis focuses on Italian regions and municipalities. Although these questions cut across many disciplines, we take an economic approach.

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Last updated January 9, 2014