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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

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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