Culture rules the foundations of the rule of law and other norms of governance
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Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance. By Licht, Goldschmidt and Schwartz Discussant: Mariassunta Giannetti Stockholm School of Economics, CEPR and ECGI. Culture and Governance.

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Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance

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Culture rules the foundations of the rule of law and other norms of governance

Culture Rules: The Foundations of the Rule of Law and Other Norms of Governance

By Licht, Goldschmidt and Schwartz

Discussant: Mariassunta Giannetti

Stockholm School of Economics, CEPR and ECGI


Culture and governance

Culture and Governance

  • Which are the determinants of rule of law, corruption, democratic accountability?

    • Economists’ answers: laws, and ultimately wealth distribution, and other economic factors.

    • Legal origin

  • This paper: culture

    • Values, knowledge and other factors that influence behavior transmitted from a generation to the next


Related literature

Related literature

  • Other papers have related culture to investor protection

    • Litcht, 2001

    • Litch et al., 2001

    • Stulz and Williamson, 2003

  • It remains to be explained how culture is related to laws, corruption, rule of laws

    • i.e., which is the mechanism?

    • I am not commenting on the specific measures of culture…


Does culture matters

Does culture matters?

  • Evidence from more specific contexts

    • Guiso, Sapienza and Zingales

      • Trust affects propensity to use financial instruments such as checks and buy stocks in Italy

      • Trust in others and common cultural values affect economic exchange

      • Religiosity affects attitude towards business

    • Landier

      • Attitude towards failure affects propensity to undertake risky projects

    • Giannetti and Simonov

      • Social norms (again, culture) affect the propensity to become entrepreneurs


The mechanism of the big picture

The mechanism of the big picture

  • Why culture affects rule of law, corruption, democratic accountability?

  • Direct

  • Indirect

    • The diffusion of stock ownership depends on culture such as the propensity to trust others

    • Some countries protect property and in particular shareholders’ rights better because stockownership is more diffused.

  • Mechanism important for policy implications


The mechanism of the big picture continued

The mechanism of the big picture (continued)

  • Culture changes in response to economic incentives

    • Eg, Reformation

    • Why would some countries maintain a culture that brings to suboptimal economic outcomes?

      • It is only a matter of preferences?

      • Need models and equilibrium

  • Culture may have been affected by institutions in the past and these may also affect current governance

    • Gennaioli and Rainer (2005)

      • Provision of public goods in colonial and post-colonial Africa depends on pre-colonial institutions

      • This might depend on the effects of pre-colonial institutions on, say, wealth distribution


The mechanism of the big picture continued1

The mechanism of the big picture (continued)

  • The relation between laws and value is complex

  • Laws may shape values

    • Funk (2004)

      • Non-enforced laws affect individual behavior

      • In certain Swiss Cantons, the legal abolishment of the voting duty significantly decreased voter turnout

  • Laws and values may be substitutes

    • Gneezy and Rustichini (2000)

      • A fine is a prize

        • After the introduction of a fine, parents are more likely to pick up kids at the kindergarten late


Conclusions

Conclusions

  • I liked the paper

    • It made me think

  • Micro empirical testing and modeling to dig out mechanisms


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