Three essays on economic history and experimental economics

While economists recognize the important role of formal institutions in the promotionof trade, there is increasing agreement that institutions are typically endogenous to culture.The question remains how institutions interact with cultural variables when they areimposed exogenously. In social psychology, the individualism/collectivism distinction isthought to be an important cultural variable underlying many behavioral differences. Inthe first chapter, Erik kimbrough and I design an experiment to explore the relationship betweensubjects’ dispositions to individualism/collectivism and their willingness to engagein trade under enforcement institutions of varying strength. Overall, we find a positive effectof strong institutions on trade, but once we control for individualism/collectivism,institutions have no significant effect, and we observe that individualists engage in trademore often than collectivists. This suggests that cultural dispositions may even outweighinstitutions in the promotion of trade.The choice of enforcement mechanism in conducting long-distance trade has long beenassociated with cultural dispositions to individualism and collectivism. Nevertheless, theselection process of a formal or an informal enforcement mechanism and how it relatesto the reliability of the third party enforcement is unknown. In the second chapter, I designeda laboratory experiment in which the options for both a safe local trade and a riskyyet more profitable long-distance trade are available. Long-distance trade is governed byeither a formal or an informal enforcement mechanism. I examined the choice of informalversus formal enforcement mechanism while controlling for the cultural dispositionof subjects. I found that individuals with a collectivist cultural orientation used informalenforcement when effective formal enforcement is available significantly more frequentlythan those with an individualist orientation. Those with individualistic cultural orientationsubstituted formal enforcement for informal enforcement when the former created areliable contract.Enforceable property rights are the first steppingstones toward economic development.While nobles in some Western European countries successfully constrained sovereigns’arbitrary taxation, their Middle Eastern counterparts failed to gain similar rights. In thethird chapter, I compare the impact of Islamic inheritance law and that of primogeniture onthe welfare of economic agents. In the model, I define three types of agents: the sovereign,nobles and peasants. The nobles, unlike the peasants, own land. Furthermore, noblesalso own firms/estates that produce food. To protect their produce, nobles engaged ina conflict with an extractive sovereign to determine the tax rate. The findings demonstratedthat primogeniture led to a lower tax rate and higher welfare level for both noblesand the sovereign. Peasants, however, due to lower wages, suffered under primogeniture.