By Jens Prüfer
“What roles do culture and institutions play in determining the wealth of nations?” is the billion dollar-question that Paola Giuliano and SIOE 2016 keynote speaker Alberto Alesina put forward in their recent JEL-article, “Culture and Institutions.”
Related to earlier work on the topic, e.g. Greif (2006), the authors devote significant space to discussing definitions of culture and institutions. They contrast North's (1990) definition with Greif's: "In North's definition, the rules of the game are distinct from the way the game is played. Greif, on the other hand, does not regard institutions as exogenously specified rules. Instead, he treats institutions as endogenous, emphasizing that the behavior of actors who enforce the rules of the game must be explained by institutions" (p.902).
Alesina and Giuliano, however, identify problems with both definitions, especially that they overlap too much with culture, as “norms” and “conventions” are used to define both institutions and culture. Instead, they put forward their own delineation of the concepts, namely: "we refer to culture as values and beliefs (one could say informal rules) and to institutions as formal institutions" (p.902).
The remainder of the article offers a comprehensive overview over the theoretical and empirical literatures studying the effects from culture to formal institutions, and vice versa, and the interactive mutual development of both culture and institutions. The discussion of formal institutions comprises legal and political institutions, as well as the welfare state, and regulation. The discussion of cultural traits starts with well know generalized trust but also summarizes findings on the origins and effects of family ties, individualism vs. collectivism, generalized morality, and beliefs in a just world.
The article does not only speak to core issues that are at the heart of any scholar of institutions – and is therefore a very pleasent read - but also offers follow-up researchers both a well-informed and up-to-date literature overview (indicating where to start with own projects) and hands-on tools. For instance, the authors discuss measurement issues (pros and cons of survey data vs. second-generation immigrants vs. experiments) but also point to the fact that the existence of complementarities between culture and institutions hinders econometric identification. They therefore conclude that “researchers will need to assemble a chronology of both cultural change and institutional change and then examine the interrelationships between them” (p.938).
With this introduction, Alberto Alesina’s keynote address in Paris will be longed for even more eagerly.