Seminar 4 (Oct. 16)

I. Culture and trust (continued from last seminar; subquestion 7 is new)

4. Assume instead that there are many players around where every player is matched with a randomly chosen other player every period. Discuss to what extent trust can be sustained in this environment.
5. Assume players have a visible marker of identity, such as ethnicity. Could a situation where players trust the other player if they are both from the same ethnicity, but not if the other player is from a different ethnicity be a SPNE in the repeated game?
6. Is it possible to interpret Nunn and Wantchekon's (2011) findings in the light of the above analysis?
7. The Nordic countries have traditionally been among the countries with the highest trust level in the world. Explain first why this may have been a (partial) explanation for the success of the Nordic countries. Discuss next whether this is likely to be a pure blessing in a more globalized world.

II. Sugar and inequality

Consider Engerman and Sokoloff's (1997) paper:

1. Try to describe generally how differences in resource endowments affect distribution hence hence institutional development
2. In the paper "Inequality does cause underdevelopment: Insights from a new instrument" (2007), Bill Easterly use the abundance of land suitable for growing wheat relative to the abundance of land suitable for growing sugar cane as an instrument for inequality across countries
   1. Explain the rationale for such an instrument in light of Engerman and Sokoloff's work. The figure shows a version of his first stage regression: Does it correspond to what you would expect?
   2. In the first panel of his Table 4, he attempt to study the causal effect of inequality on development (measured by log per capita income). Discuss his findings.
3. In 19th century Norway, the coast of the northern part of the country was politically and economically dominated by an elite of fish buyers (væreier) facing a nummer of poor fishermen. Further south along the coast, fisheries were less abundant and buyers were less powerful.
   1. What would be the expected outcomes regarding instituional end poilitical development in the two regions according to Engerman and Sokoloff's theory?
   2. It turns out that the first parliamentary representatives from the Labor party (then a revolutionary socialist party) came from the North. How does this fit in Engerman and Sokoloff's framework? How about the model of Acemoglu and Robinson (2001)?