Analysis of the paper by Guiso,L., Sapienza,P. & Zingales, L., 2010. Civic Capital as the Missing Link. NBER Working Paper n.15845; International Economics & Finance Course.

1. International Economics & Finance 07/12/2011
Luigi Guiso, Paola Sapienza, Luigi Zingales (2010)
Mattia Bardella
Nicola Cenedese
Matteo Griggio

2. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 2

3. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 3

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 as the missing link 07/12/2011 4

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. Stock
2. Positive payoff
3. Accumulation and depreciation
4. Distinguishable: not different from human capital
Civic Capital as the missing link 07/12/2011 5

6. “set of relationships that supports effective norms“
(Coleman, 1990)
1. Stock: no separation input/ouputs
2. Positive payoff: can become social liability
3. Accumulation and depreciation: new relationships =
= inv./disinv.?
4. Distinguishable
Civic Capital as the missing link 07/12/2011 6

7. “Social capital is a property of large groups, even
nations (not individual), similar to Machiavelli’s
civic virtue”
1. Stock: no separation input/ouputs
2. Positive payoff
3. Accumulation and depreciation: unclear process of
inv./disinv.
4. Distinguishable
Civic Capital as the missing link 07/12/2011 7

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 as the missing link 07/12/2011 8

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. Stock
2. Positive payoff
3. Accumulation and depreciation
4. Distinguishable
Civic Capital as the missing link 07/12/2011 9

10. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 10

11. 1. Intergenerational transmission of values
2. Education
3. Socialization
Civic Capital as the missing link 07/12/2011 11

12.  Tabellini (2008):
 Parents optimally choose values to transmit
 Assessment of children’s welfare in term of parents’
values
 Network effect of cooperation makes transmission easier
 GSZ (2008) model of beliefs
 Overlapping-generation model  Updating of priors
 Net perceived benefit  Choice of which priors to pass
of coop vs. non coop
 Temporary positive shocks  Persistent changes in priors
Civic Capital as the missing link 07/12/2011 12

13.  CC is the set of virtues learnt at school
 Substitution effect of CC with regulation in dealing
with negative externalities (CC Need of regulation )
 Payoff for the whole society
Need for public financing to education
 Doubt: different styles of education can have different
returns in term of CC
Civic Capital as the missing link 07/12/2011 13

14.  People adapt their norms and beliefs in response to social
pressure of the community they live in
 Different effects of social pressure on beliefs and values:
 BELIEFS
 Always affected by socialization
 Asymmetry between accumulation/deterioration
 VALUES
 Normally embedded in preferences (not modifiable)
 but Conformism desire can lead to changes
Civic Capital as the missing link 07/12/2011 14

15.  Religion as further potential source of socialization
 Stronger moral values and higher trust of people
raised religiously
 Difference between more and less hierarchical
religions
 Decentralization in Protestantism
 Hierarchy in Catholicism
 Religious people more intolerant of diversity
Civic Capital as the missing link 07/12/2011 15

16. 1. Change in economic and social factors
2. Historical events generating mistrust
3. Changes in moral acceptability of certain
behaviors
Civic Capital as the missing link 07/12/2011 16

17.  Clear investment process
Intergenerational transmission,
education, socialization
 Clear difference from human capital
 Accumulation process consistent with
methodological individualism
can be included in standard economic
models
Civic Capital as the missing link 07/12/2011 17

18.  Long time (generations) for accumulation
 Increasing returns to scale
Civic Capital as the missing link 07/12/2011 18

19. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 19

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 as the missing link 07/12/2011 20

21.  Qualitative answers
 Pre-determined questions
Civic Capital as the missing link 07/12/2011 21

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 as the missing link 07/12/2011 22

23. VALUES BELIEFS
SURVEYS
EXPERIMENTS
Civic Capital as the missing link 07/12/2011 23

24. VALUES BELIEFS
SURVEYS
EXPERIMENTS
Problem: poor incentives to reveal
true values
Civic Capital as the missing link 07/12/2011 24

25. VALUES BELIEFS
SURVEYS
EXPERIMENTS
Denmark
Japan
Canada
Norway
Italy
General correlation with economic
development
Civic Capital as the missing link 07/12/2011 25

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 questions
Civic Capital as the missing link 07/12/2011 26

27. VALUES BELIEFS
SURVEYS
EXPERIMENTS
N= participants
S = $ given to each participant
NxS = 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 as the missing link 07/12/2011 27

28. VALUES BELIEFS
SURVEYS
EXPERIMENTS
ADVANTAGES SHORTCOMINGS
Simple structure which facilitates Not very representative samples
interpretation of behaviors; (undergraduate students);
Real money can make answers Experimenter effect bias
incentive compatible
Civic Capital as the missing link 07/12/2011 28

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 as the missing link 07/12/2011 29

30. VALUES BELIEFS
SURVEYS
EXPERIMENTS
Correlation trust/economic
development;
High variability;
Positive economic payoff
Civic Capital as the missing link 07/12/2011 30

31. VALUES BELIEFS
SURVEYS
EXPERIMENTS
WVS P.C. - TRUST TABELLINI P.C. - TRUST
Correlation patterns confirm validity of previous measures regarding values
Civic Capital as the missing link 07/12/2011 31

32. VALUES BELIEFS
SURVEYS
EXPERIMENTS
Increasing values of personalized trust
Correlations
Civic Capital as the missing link 07/12/2011 32

33. VALUES BELIEFS
SURVEYS
EXPERIMENTS
(European social survey)
Civic Capital as the missing link 07/12/2011 33

34. VALUES BELIEFS
SURVEYS
EXPERIMENTS
 Crucial role of WORDING
 Risk of endogeneity in the model
 No mapping of results in a probabilistic form (as in
exp.)
 Individual preferences (such as betrayal aversion) may
be included in answers collected.
 Endogeneity problem: values and beliefs might affect c.c.
through preferences
Civic Capital as the missing link 07/12/2011 34

35. VALUES BELIEFS
SURVEYS
EXPERIMENTS
E = € owned by A
S = € 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 and intensity of trust)
Civic Capital as the missing link 07/12/2011 35

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 as the missing link 07/12/2011 36

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 as the missing link 07/12/2011 37

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 as the missing link 07/12/2011 38

39. Civic Capital as the missing link 07/12/2011 39

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 as the missing link 07/12/2011 40

41. Civic Capital as the missing link 07/12/2011 41

42. GDP per capita > $ 20.000
GDP per capita < $ 20.000
Possible explanation: trust’s usefulness is directly proportional to
sophistication of economic transactions
Civic Capital as the missing link 07/12/2011 42

43. control
Civic Capital as the missing link 07/12/2011 43

44. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 44

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 as the missing link 07/12/2011 45

46. TRUST IN
STRANGERS
 Only 45% of
cross
country
variation in
CC
Civic Capital as the missing link 07/12/2011 46

47. VIOLATION
 Almost non
significant
correlation
with all
variables
Civic Capital as the missing link 07/12/2011 47

48. P.C. of CIVIC
VALUES
 NO
significant
correlation
Civic Capital as the missing link 07/12/2011 48

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 as the missing link 07/12/2011 49

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 contingencies (1993): historical episodes justify
differences between North & South
 GSZ (2008): comparison WITHIN NORTH, not just between
N&S
Civic Capital as the missing link 07/12/2011 50

51. COLLAPSE OF ROMAN SACRED EMPIRE
Civic Capital as the missing link 07/12/2011 51

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 as the missing link 07/12/2011 52

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 as the missing link 07/12/2011 53

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 long lasting
Civic Capital as the missing link 07/12/2011 54

55. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 55

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 as the missing link 07/12/2011 56

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 as the missing link 07/12/2011 57

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 generations
Historical economic
Current economic
performance
performance
Civic Capital as the missing link 07/12/2011 58

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 as the missing link 07/12/2011 59

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 as the missing link 07/12/2011 60

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 as the missing link 07/12/2011 61

62.  GDP per capita and time-variation in trust (Algan and
Cahuc, 2008)
 Use of time variation in trust to eliminate institutions’
endogeneity
Correlation
Y = income per capita (institutional shocks)
S = trust (WVS)
X = vector of control
Fc = country fixed effect of time-invariant institutions that make
productivity change
Ft = time fixed effect of factor endowment and time varying
productivity
v = error term
Civic Capital as the missing link 07/12/2011 62

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 as the missing link 07/12/2011 63

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 as the missing link 07/12/2011 64

65. 1. Definitions of social capital
2. Accumulation & Depreciation
3. Measurement
4. Origins of civic capital (CC)
5. Economic effects of CC
6. Conclusions & further research
Civic Capital as the missing link 07/12/2011 65

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 as the missing link 07/12/2011 66

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 as the missing link 07/12/2011 67