Individualism, collectivism, and trade
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While economists recognize the important role of formal institutions in the promotion of trade, there is increasing agreement that institutions are typically endogenous to culture, making it difficult to disentangle their separate contributions. Lab experiments that assign institutions exogenously and measure and control individual cultural characteristics can allow for clean identification of the effects of institutions, conditional on culture, and help us understand the relationship between behavior and culture, under a given institutional framework. We focus on cultural tendencies toward individualism/collectivism, which social psychologists highlight as an important determinant of many behavioral differences across groups and people. We design an experiment to explore the relationship between subjects’ degree of individualism/collectivism and their willingness to abandon a repeated, bilateral exchange relationship in order to seek potentially more lucrative trade with a stranger, under enforcement institutions of varying strength. Overall, we find that individualists tend to seek out trade more often than collectivists. A diagnostic treatment and additional analysis suggests that this difference may reflect both differential altruism/favoritism to in-group members and different reactions to having been cheated in the past. This difference is mitigated somewhat as the effectiveness of enforcement institutions increases. Nevertheless we see that cultural dispositions are associated with willingness to seek out trade, regardless of institutional environment.
KeywordsIndividualism Collectivism Exchange Trust Experiments
JEL ClassificationC7 C9
The authors thank the Social Science and Humanities Research Council of Canada and the Teaching and Learning Centre at Simon Fraser University for financial support. We would also like to thank the editor and two anonymous referees,Tanya Broesch, Kevin Chen, Greg Dow, David Freeman, David Jacks, Laurence Iannaccone, Michael McBride, Angela de Oliviera, Rob Oxoby, Jared Rubin, John Spraggon, and audiences at the 2015 Economic Science Association North American meeting, 2016 Association for the Study of Religion, Economics and Society Annual Conference, and the University of Massachusetts-Amherst Behavioral and Experimental Economics Reading Group for helpful comments. Figures were created using the open-source statistical software R.
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