Social Norms, Institutions and Growth

University Of California-Los Angeles, Los Angeles CA

Investigators

Abstract

9986170 Levine The goal of the project is to provide a coherent framework for understanding the emergence and consequences of economic institutions and their impact on growth. Examining wide spans of history, it is apparent that some institutions are relatively more successful than others. Which institutions will emerge, and which will be successful? What social norms are needed to support particular institutions? How does production technology impact on institutions? This project addresses these issues theoretically and in the laboratory and relates the findings to historical and current institutions. The short-term goal is to develop simple models that enable us to understand which social norms and institutions will emerge in particular environments, and to relate this to social norms and institutions observed in the field and laboratory. The long-term goal is to provide an integrated theory. Institutions differ in the extent to which they promote growth, efficiency and inhibit conflict. Competitive environments we understand relatively well. Non-competitive environments are less well understood. From laboratory experiments, as well as casual empiricism, attitudes towards others play an important role that they do not play in competitive environments. It matters little to the wheat market how a consumer personally feels about a particular wheat farmer. However, the attitude of a top-level employee toward an employer has a direct bearing on how successful the firm will be. The perspective taken in this project is that attitudes towards others are social norms that arise as an equilibrium phenomenon. The dynamic equilibrium determines preferences at a moment of time that may be altruistic or spiteful, despite underlying selfishness. The first project is a theoretical study of how such social norms function to support a simple and primitive society. How does this simple egalitarian equilibrium breaks down as the population size and parameters of information and technology vary. This gives a solid foundation for understanding what problems more complex institutions must deal with. Complementary to this, the second project is designed to examine existing social norms in the laboratory. One of the key questions is the consistency of social norms. Are particular players spiteful, or is their spite triggered by the play of opposing players? How do social norms differ in populations of different sizes? Will social norms adapt to equilibrium in the laboratory, and if so, over what time horizon? How does information play a role in enabling players to determine the intentions of their opponents, and does this make a difference to their play? These are some of the issues we plan to study in the laboratory. As we move beyond simple relatively egalitarian institutions. specialization becomes important. Specialization is also crucial in development and technological progress. The third sub-project continues previous work on explosive growth with diminishing returns to scale. The goal is to examine more closely the role of specialization, and make an explicit comparison to economies in which there are fixed costs due to ideas or designs. One of the key elements of institutions we observe in the field is the emphasis on avoiding costly conflict. The final project focuses on conflict and why it arises. It extend an existing static literature on conflict to examine the extent to which conflict may arise due to time consistency problems, and be avoided through a series of small concessions.