Civic Capital as the Missing Link_Zingales et al.

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Civic Capital as the Missing Link_Zingales et al.

  1. 1. International Economics & Finance 07/12/2011 Luigi Guiso, Paola Sapienza, Luigi Zingales (2010)Mattia BardellaNicola CenedeseMatteo Griggio
  2. 2. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 2
  3. 3. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 3
  4. 4.  Ambiguity due to the wide use of the term Solow’s criteria (1995) for capital 1. Identifiable and measurable stock; 2. Measurable non-negative economic payoff; 3. Clear mechanisms of accumulation and depreciation; 4. Distinguishable from other types of capital (e.g. human capital). Civic Capital a the missing link 07/12/2011 4
  5. 5. "the aggregate of actual or potential resources which are linked to possession of a durable network of more or less institutionalized relationships of mutual acquaintance and recognition" (Bourdieu, 1983)1. Stock2. Positive payoff3. Accumulation and depreciation4. Distinguishable: not different from human capital Civic Capital a the missing link 07/12/2011 5
  6. 6. “set of relationships that supports effective norms“ (Coleman, 1990)1. Stock: no separation input/ouputs2. Positive payoff: can become social liability3. Accumulation and depreciation: new relationships = = inv./disinv.?4. Distinguishable Civic Capital a the missing link 07/12/2011 6
  7. 7. “Social capital is a property of large groups, even nations (not individual), similar to Machiavelli’s civic virtue”1. Stock: no separation input/ouputs2. Positive payoff3. Accumulation and depreciation: unclear process of inv./disinv.4. Distinguishable Civic Capital a the missing link 07/12/2011 7
  8. 8. “those persistent and shared beliefs and values that help a group overcome the free rider problem in the pursuit of socially valuable activities” VALUES BELIEFS Civic Capital a the missing link 07/12/2011 8
  9. 9. “those persistent and shared beliefs and values that help a group overcome the free rider problem in the pursuit of socially valuable activities”1. Stock2. Positive payoff3. Accumulation and depreciation4. Distinguishable Civic Capital a the missing link 07/12/2011 9
  10. 10. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 10
  11. 11. 1. Intergenerational transmission of values from parents to children2. Education3. Socialization Civic Capital a the missing link 07/12/2011 11
  12. 12.  Tabellini (2008):  Transmission of values  Assesment of children’s welfare in term of parents’ values  Network effect GSZ (2008) model of beliefs  Overlapping model < --- > updated priors  Positive/negative prior < --- > net perceived benefit of cooperation vs. non cooperation  Temporary positive shocks --- > persistent changes Civic Capital a the missing link 07/12/2011 12
  13. 13.  CC = set of virtues learnt at school Substitution effect regulation/CC Payoff for the whole society Need for public financing to education Doubt: different styles of education Civic Capital a the missing link 07/12/2011 13
  14. 14.  Social pressure Difference between beliefs and values  BELIEFS  Always transmitted through socialization  Asymmetry between accumulation/deterioration  VALUES  Normally embedded in preferences  Transmitted if conformism desire Civic Capital a the missing link 07/12/2011 14
  15. 15.  Religion as source of socialization Difference between more/less hierarchical religions  Decentralization in Protestantism  Hierarchy in Catholicism Religious people more intolerant of diversity Civic Capital a the missing link 07/12/2011 15
  16. 16. 1. Change in economic and social factors2. Historical events generating mistrust3. Changes in moral acceptability of certain behaviors Civic Capital a the missing link 07/12/2011 16
  17. 17.  Clear investment process Intergenerational transmission, education, socialization Clear difference from human capital Accumulationprocess consistent with methodological individualism can be included in standard economic models Civic Capital a the missing link 07/12/2011 17
  18. 18.  Long time for accumulation Increasing returns to scale Civic Capital a the missing link 07/12/2011 18
  19. 19. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 19
  20. 20.  Direct measures VALUES BELIEFS WVS; European social survey; General social survey, SURVEYS Eurobarometer; German social economic panel Public good game Trust game (Berg, EXPERIMENTS (Camerer and Fehr Dickhaut and 2003); McCabe 1995) Indirect measures Civic Capital a the missing link 07/12/2011 20
  21. 21.  Qualitative answers Pre-determined questions Civic Capital a the missing link 07/12/2011 21
  22. 22. VALUES BELIEFS SURVEYS EXPERIMENTS Panel on values and beliefs of 80 countries worldwide Choice of questions testing free-riding attitude Answers on Likert scale  1 = min cooperation/contribution to public good;  10 = max cooperation/contribution Civic Capital a the missing link 07/12/2011 22
  23. 23. VALUES BELIEFS SURVEYS EXPERIMENTSCivic Capital a the missing link 07/12/2011 23
  24. 24. VALUES BELIEFS SURVEYS EXPERIMENTS Problem: poor incentives to reveal true valuesCivic Capital a the missing link 07/12/2011 24
  25. 25. VALUES BELIEFS SURVEYS EXPERIMENTS Denmark Japan Canada Norway Italy General correlation with economic developmentCivic Capital a the missing link 07/12/2011 25
  26. 26. VALUES BELIEFS SURVEYS EXPERIMENTS Sweden Denmark Germany USA Italy Use of Tabellini (2009) model to verify consistency Solution: less incentive to lie because of less subjective questionsCivic Capital a the missing link 07/12/2011 26
  27. 27. VALUES BELIEFS SURVEYS EXPERIMENTSN= participantsS = $ given to each participantNxS = total endowment = percentage of S returned to administrator by participant i = = effective percentage of NxS received by the administrator = pre-determined threshold of overall endowment whose reaching implies a social benefit, for each participant, higher than S If more than N participants free-ride, everyone loses; is an indicator of civic capital in a community Civic Capital a the missing link 07/12/2011 27
  28. 28. VALUES BELIEFS SURVEYS EXPERIMENTS ADVANTAGES SHORTCOMINGSSimple structure which facilitates Not very representative samples interpretation of behaviors; (undergraduate students); Real money can make answers Experimenter effect bias incentive compatible Civic Capital a the missing link 07/12/2011 28
  29. 29. VALUES BELIEFS SURVEYS EXPERIMENTS Use of TRUST as proxy of beliefs  Major determinant of investing and saving decisions  It can be measured as a probability  Higher values of probability enhance cooperation (Gambetta 1988)  Generalized vs. Personalized Civic Capital a the missing link 07/12/2011 29
  30. 30. VALUES BELIEFS SURVEYS EXPERIMENTS Correlation trust/economic development; High variability; Positive economic payoffCivic Capital a the missing link 07/12/2011 30
  31. 31. VALUES BELIEFS SURVEYS EXPERIMENTS WVS P.C. - TRUST TABELLINI P.C. - TRUSTCorrelation patterns confirm validity of previous measures regarding values Civic Capital a the missing link 07/12/2011 31
  32. 32. VALUES BELIEFS SURVEYS EXPERIMENTSIncreasing values of personalized trust Correlations Civic Capital a the missing link 07/12/2011 32
  33. 33. VALUES BELIEFS SURVEYS EXPERIMENTS(European social survey) Civic Capital a the missing link 07/12/2011 33
  34. 34. VALUES BELIEFS SURVEYS EXPERIMENTS Crucial role of WORDING  Risk of endogeneity in the model Individual preferences (such as betrayal aversion) may be included in answers collected. Civic Capital a the missing link 07/12/2011 34
  35. 35. VALUES BELIEFS SURVEYS EXPERIMENTSE = € owned by AS = € sent to B multiplier applied to S (generally, ) = The fraction of initial endowment given to the receiver in stage 1 (behavioral measure of trust)Fraction x of = sum returned to the sender, in stage 2 (measure of trustworthiness ) Civic Capital a the missing link 07/12/2011 35
  36. 36.  Once social capital is defined as CC, it can be measured Measures of the diffusion of civicness and morality norms Measures of beliefs that help characterize the stock of civic capital COHERENCE WITH SOLOW’S REQUIREMENTS However  Need to select the right indicators;  Interpretational biases;  Cross-country comparability (high variability). Civic Capital a the missing link 07/12/2011 36
  37. 37.  They represent measures of outcomes (input is CC) In general, they are difficult to interpret because of contamination (ex: institutional effect) Relationship input/output should not be affected by other factors, otherwise endogeneity  Blood donations  Electoral participation  Parking violation by UN diplomats Civic Capital a the missing link 07/12/2011 37
  38. 38.  no economic payoff; no legal obligation voter turnout = cost to sustain for producing the public good in some Italian regions, civic capital is higher positive correlation of BD and EP, but far from perfect Civic Capital a the missing link 07/12/2011 38
  39. 39. Civic Capital a the missing link 07/12/2011 39
  40. 40.  Un diplomats are the statistical units PV not punished until 2002 in Manhattan = no legal enforcement So, the only reason why one should violate parking rules is related to cultural norms Civic Capital a the missing link 07/12/2011 40
  41. 41. Civic Capital a the missing link 07/12/2011 41
  42. 42. GDP per capita > $ 20.000 GDP per capita < $ 20.000Possible explanation: trust’s usefulness directly proportional tosophistication of economic transactions Civic Capital a the missing link 07/12/2011 42
  43. 43. control Civic Capital a the missing link 07/12/2011 43
  44. 44. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 44
  45. 45. CROSS COUNTRY REGRESSIONS Use 3 determinants of CC:  Trust in strangers (WVS)  Parking violation (Fisman & Miguel, 2010)  Principal component of civic values (WVS) Problem: impossible to make any causal statement Use of log GDP as control variable Civic Capital a the missing link 07/12/2011 45
  46. 46. TRUST INSTRANGERS Only 45% of cross country variation in CC
  47. 47. VIOLATION Almost non significant correlation with all variables
  48. 48. PC of CIVIC VALUES NO significant correlation
  49. 49. TABELLINI (2009) Better analysis of relationship between history and civic capital Variation of norm & beliefs across regions of Europe CC as WVS trust and P.C. of cultural values Causality: use country fixed effects Key idea (Putnam 1993): brutal regimes are vehicles for mistrust creation Civic Capital a the missing link 07/12/2011 49
  50. 50. COLLAPSE OF ROMAN SACRED EMPIRE(beginning of 2ND millennium) Differences between North & South of Italy:  South: Efficient Norman Monarchy  North: political vacuum, so birth of cooperative institutions (COMMUNES) cooperation for production of the public good Putnam conjectures (1993): historical episodes justify differences between North & South GSZ (2008): comparison WITHIN NORTH, not just between N&S Civic Capital a the missing link 07/12/2011 50
  51. 51. COLLAPSE OF ROMAN SACRED EMPIRE
  52. 52. COLLAPSE OF ROMAN SACRED EMPIRE Analysis within the North: Not all cities became indipendent: some quickly lost it, some loyal to the Emperor/Feudal Lord USE 2 CONTROL VARIABLES:  City seat of a Bishop (facilitate coordination)  Founded by Etruscans or not (proxy of defense capability) Civic Capital a the missing link 07/12/2011 52
  53. 53. RESOURCES’ EXPLOITATION Ostrom (1990)  mountainous areas induces high cooperation and mutual trust (forestry; cutting turns, pool and divide the proceeds)  sheep breeding areas: Sheppard can work alone, so no cooperation required, so low trust and little cooperation Durante (2009): European areas with high climate variability have more civic capital (higher level of trust)  climate variability generates higher need for insurance, thus more cooperation Civic Capital a the missing link 07/12/2011 53
  54. 54.  PRO: truly exogenous and randomized treatment CON: period of time CONDITIONAL CASH TRANSFER PROGRAM, COLUMBIA: participation to meetings based on cooperation and mutual trust topics, that can foster civic capital IF lessons learned are implemented in real life ATTANASIO (2009): PUBLIC GOOD GAME between a 2y CCT village and a non-CCT village BUT: not random selection of villages and unclear if difference is longlasting Civic Capital a the missing link 07/12/2011 54
  55. 55. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 55
  56. 56.  Standard economic models can explain only half of the difference in economic performance (level of GDP per capita) between countries. Civic capital could be the MISSING FACTOR to explain the residual differences Challenge: find convincing sources of exogenous variation to overcome endogeneity emerging when:  CC reflects also the working of institutions  CC is correlated with unobserved factors affecting also performance  CC is partially reverse-caused by current economic forces Civic Capital a the missing link 07/12/2011 56
  57. 57.  The narrower definition proposed can make easier to identify CC within economic performance (and as one of its determinants) Problem: it’s plausible to expect countries with higher CC (strong values, high trust) chooses institution that supports these values. Need of appropriate instruments to isolate the combined effect of CC and institutions on economic performance  2 main approaches in literature: 1. Links between past political institution and current cultural traits 2. Movers approach and the idea of “cultural portability” Civic Capital a the missing link 07/12/2011 57
  58. 58.  Culture is transmitted slowly between generation Relevant historical episodes can predict today’s norms and beliefs Key issue: the historical instrument don’t have effect on todays’s output but affect it only trough its influence on past culture Intercultural transmission Historical Cultural trait of Cultural trait of episode former generations . current generationsHistorical economic Current economic performance performance Civic Capital a the missing link 07/12/2011 58
  59. 59.  Some examples:  Literacy rates in XIXth and indicator of political institution from 1600 to 1850 to explain current difference in CC endowment across Europe (Tabellini, 2009)  Past history of communal independence to explain difference in CC endowment across cities of northern Italy (GSZ, 2008) Major shortcoming  Current differences in culture across regions could capture differences in the actual performance of institution  The historical episode could have fostered accumulation of other forms of capital that still have an influence on economic performance (i.e. arts)  Need to obtain direct measures to control for them Civic Capital a the missing link 07/12/2011 59
  60. 60.  Fundamental intuition  Norms and beliefs tend to move when people migrates  Institutions are not portable so CC embedded in the migrant is due only to norms and beliefs (not to institutions) then it’s possible to separate the effect on outcome of institutions from the one of CC Civic Capital a the missing link 07/12/2011 60
  61. 61.  An example: Italian movers within Italy (GSZ, 2004)  Test effect of CC on financial developement  Controls for the province of birth to identify movers  Dummies for the province of living to control for actual performance of institutions  civic capitalaffected by cultural traits and not by institutions Results  civic capital in the province of birth affect use and availability of financial contracts (=trust) in the living province Civic Capital a the missing link 07/12/2011 61
  62. 62.  GDP per capita and time-variation in trust (Algan and Cahuc, 2008)  Use of time variation in trust to eliminate institutions’ endogeneity CorrelationY = income per capita (institutional shocks)S = trust (WVS)X = vector of controlFc = country fixed effect of time-invariant institutions that make productivity changeFt = time fixed effect of factor endowment and time varying productivityv = error term Civic Capital a the missing link 07/12/2011 62
  63. 63.  Substitute Sct with that is trust of the previous generation No Correlation trust of previous generation affects trust of today generation (through inter-generational transmission) transmission took place when current GDP wasn’t yet produced so is orthogonal to the error because it does not include the effect of institutional shocks Endogeneity is removed Civic Capital a the missing link 07/12/2011 63
  64. 64.  Algan and Cahuc (2008) found a positive/significant and quantifiable effect of civic capital on GDP per capita Figure 10 The effect on GDP per capita of a Swedish level of CC Civic Capital a the missing link 07/12/2011 64
  65. 65. 1. Definitions of social capital2. Accumulation & Depreciation3. Measurement4. Origins of civic capital (CC)5. Economic effects of CC6. Conclusions & further research Civic Capital a the missing link 07/12/2011 65
  66. 66.  Ambiguity in the definition of social capital has slowed down the development of literature on the topic Civic capital definition satisfies Solow’s criteria Civic capital clearly differentiates social capital from other kinds Civic is the missing factor of production which can help explain the residuals of Solow’s model Civic Capital a the missing link 07/12/2011 66
  67. 67.  Current measures are not yet ready to be used in national accounting Trust is the most promising component of a measure of CC  Founded economically  Easy to measure  Correlated with variables of interests Clarify the determinants of persistence of CC  Avoid policies that undermine CC, with negative long term effects  Boost policies that foster the formation and preservation of CC Civic Capital a the missing link 07/12/2011 67

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