Summary of JOIE Article (07 December 2023) by Stefan Voigt, Institute of Law & Economics, University of Hamburg, Germany. The full article is available on the JOIE website.
For a long time, scholars in institutional economics were primarily concerned with formal institutions such as state-made and -enforced laws. This has completely changed over the last couple of years with more and more scholars analyzing the relevance of informal institutions. Some scholars argue that informal institutions are key to the actual implementation of formal ones. Others argue that informal institutions have direct effects on the development prospects of society, spanning from innovation-friendliness to the rule of law and democracy. Further, it is often argued that informal institutions are largely time-invariant and not subject to deliberate modification by policymakers.
Given both the importance of informal institutions and their assumed general time-invariance, the factors determining them move to center stage. This paper surveys the recent literature on the determinants of informal institutions. More precisely, it surveys insights into the role of geography for one particular kind of informal institutions, namely social norms. These are informal rules non-compliance with which is sanctioned by members of society (and not by representatives of the state).
The survey is based on a broad definition of “geography”. Aspects included are the suitability of land for certain crops, regularity of rainfall, ruggedness of terrain, disease environment and other geographical factors critically influencing human interactions. While geography is highly exogenous, there are also humanly devised factors that nevertheless resist intentional design by individuals and groups. These include, among others, religious practices and traditional family organization. These factors are surveyed systematically in a sequel which is also due to appear in the Journal of Institutional Economics. This paper deals with the direct link between geography and social norms and its companion paper addresses how the link is mediated by religion and family.
Social norms regulate all conceivable kinds of human interaction from the education of children to what people are allowed or not allowed to do in cemeteries. Here, I focus on social norms that have important consequences for economic development. These include cooperation norms, sharing norms, equality norms, and norms of honesty.
It turns out that many social norms are either directly or indirectly determined by geography broadly conceived and can, hence, be considered largely time invariant. Many of the studies surveyed here rely on the epidemiological approach, i.e., they trace differences in prevalent social norms among second generation immigrants who are all subject to identical formal institutions because they were raised in the same country (e.g., the children of migrants from many countries who now all live in the U.S.). Quite generally, these studies indicate that particular norms can survive even if their holders are not subject to the geographic conditions that first gave rise to their establishment.
If formal and informal institutions are conflicting, this can be detrimental to development, as uncertainty and transaction costs will be high, implying that specialization will be relatively low, firm size small, etc. An immediate policy conclusion seems to follow: Make sure not to pass formal institutions completely at odds with informal ones. Yet this conclusion may be premature as at least tentative answers to many important questions are needed first. These include:
(1) The necessity of more (and better) measures of social norms and other informal institutions. These could come from experiments and surveys, but also from historic sources such as fairy tales.
(2) What exactly does incompatibility between internal and external institutions mean and how does it affect transaction costs?
(3) The precise channels allowing the transmission of social norms from person to person, and from generation to generation.
(4) The delineation of a group that is taught a particular set of social norms and, as a consequence, is expected to abide by them. What conditions limit the practice of a social norm to a subgroup, and what conditions permit a social norm to be shared by everyone? What are the consequences of various societal groups sharing different social norms?
(5) Further, an improved understanding regarding the time (in-)variance of social norms and other internal institutions is needed. Sometimes, norms are subject to rapid change, just think of LGBTQ norms. What are central traits that distinguish fast-changing from slow-changing social norms? And closely related: how best to model the dynamics implied in changing social norms.
(6) What means are available to induce change in social norms that make people worse off, such as female genital mutilation? Scholarly suggestions include inducing change in second order beliefs, but also leaders could propagate change.
In sum, this paper surveys dozens of recent studies on the connection between geography and social norms and finds that many social norms are at least partially determined by a society’s geography. By doing so, it helps to think of informal institutions as endogenous. But it also raises a number of additional questions that need to be answered before far-reaching policy conclusions can be drawn.