Individual Responsibility and Economic
Development: Evidence from Rainfall Data
Lewis Davis
Department of Economics
Union College
University of Perugia
May 15, 2014
Is a taste for individual responsibility
good for economic development?
• Yes: Individualism is good for development
– Focus on individual motivations and actions
– Weber (1930): Individualism frees “the
acquisition of goods from the inhibitions of
traditional ethics.”
– Lewis (1955): “initiative is likely to be stifled if the
individual who makes the effort is required to
share the reward with many others whose claims
he does not recognize.”
– Gorodnichenko and Roland (2010): individualism
fosters a taste for innovation
Is a taste for individual responsibility
good for economic development?
• No: Collectivism is good for development
– Focus on interactions and transactions
– Arrow (1972), Dixit (2004), Tabellini (2008b): Trust
reduces transaction costs
– Landa (1981) and others: Evidence that social ties
matter for ethnic trading groups
Individual Responsibility and Economic Development
89 countries, WVS 1981-2005
Caveat:
• But: This relationship may not be causal. It may reflect
– reverse causation: development destroys traditional social structures
– Influence of other factors, e.g. democracy , war, history
• Challenge: find an instrumental variable, X, that
– influences the taste for individual responsibility,
– but does not otherwise affect economic development.
• Candidate: the variation of monthly rainfall.
– In preindustrial societies, the return to collectivist social norms was
higher in regions with greater agricultural risk.
– These norms persist to the present and continue to influence values
and economic outcomes.
Claim 1: Risk and Social Ties
• In the absence of formal insurance markets, agricultural
households rely on informal risk-sharing arrangements to
smooth consumption.
– Rosenzweig (1988), Rosenzweig and Stark (1989), Foster and
Rosenzweig (2001).
• Social ties matter for risk- and income-sharing relationships:
– Rosenzweig and coauthors, Angelucci et al. (2008) on Progresa,
Fafchamps and Lund (2003) on health shocks.
• The return to collectivist social norms is higher in societies
exposed to greater agricultural risk.
– Rosenzweig and Stark (1989): HH transfers are increasing in the
number of daughters in law. HH’s in riskier villages marry further
away, creating a geographically dispersed risk-sharing family.
Claim 2: Persistence of Social Norms
• Nunn and Wantchenkon (2009): the transatlantic slave trade
affects trust in contemporary Africa.
• Tabellini (2010): early despotism and education affect
contemporary levels of trust in Europe.
• Guiso, Sapienza and Zingales (2006) and Fernandez (2010): cultural
norms persist among second and third generation US immigrants.
• Voigtlaender and Voth (2011): Medieval anti-Semitism persists to
the early twentieth century,
• Alesina, Guiliano and Nunn (2011): preindustrial use of the plow
affects contemporary gender roles.
Related Work on Individualism
• Using an instrumental variables from Linguistics
– Licht, Goldschmidt, and Schwartz (2007): Individualism increases
institutional quality
– Tabellini (2008a): Having a general rather than limited morality
increases institutional quality. Tabellini links a “general morality” to
enlightenment thinking on individual rights
• Using instrumental variables from genetics
– Gorodnichenko and Roland (2010, 2011): Individualism increases
innovation rates and economic development.
• Criticism: Hard for economists to judge the validity of
instruments from other fields. In contrast, I draw on an
economic argument to motivate the use of rainfall variation.
Contribution
• Develop a formal model of risk-sharing and socialization
demonstrating that equilibrium social ties are higher in riskier
environments.
• Present evidence of statistically and economically significant
relationships between rainfall variation, the taste for individual
responsibility, and economic development.
• Control for current and historical agricultural development,
measures of financial development, early institutional quality, and
proxies for the influence of climate on institutional development.
Related work on
Climate and Development
• Miguel, Satyanath and Sergenit (2004) and Barrios, Bertenelli
and Strobl, (2010): Short run relationship between average
rainfall and economic output.
• Ashraf and Michalopoulos (2011): variation in prehistoric
temperature levels influenced the timing of the Neolithic
revolution.
• Durante (2010): high rainfall variation is positively correlated
with contemporary trust among regions of Europe
– Similar: effects of climate on social norms.
– Different: values (individual responsibility) vs. beliefs (trust), European
vs. global sample, no formal model
II. The Model: Risk and Socialization
• Basis: Coate and Ravallion (1993)
– Two dynastic households with risky income
– Self-enforcing risk sharing arrangement
– Maximum transfer = future value of arrangement
• Extension:
– A parent may invest in the strength of her child’s social ties
– A taste for collective responsibility serves as a commitment device
that increases the maximum transfer in informal risk-sharing
arrangement s
– Optimal collectivism is increasing in the size and frequency of shocks.
Household Utility
• Lifetime Utility
V   (1  r )  t vt
• Periodic Utility
•
•
•
•

c = consumption
q = taste for collective resp.
x = status of relationship
s = socialization effort
• Socialization technology
t 0
v(ct , qt , st , xt )  u(ct )  qt xt  st
u '(c)  0 and u "(c)  0
qt  q(st 1 )
q(0)  0, q '( s)  0, q "( s)  0
Income and Risk
• Periodic Income
y A,B   y1 , y2 
y1  y   and y2  y  

• Distribution of income
pij  Pr
• Prob. of Asymmetric Shock:
p12  p21  p


y A , y B  ( yi , y j )
Informal Insurance Arrangements
• State contingent net transfers (A to B):
  11 ,12 ,21 ,22 
• Symmetric Insurance Arrangement:
  (0, ,  , 0)
• Implimentability Constraint:
gain from defection <= value of relationship
ve (, s)  ve (0, 0)
u ( y  )  u ( y     )  q ( s ) 
r
 G( , s)  r u ( y  )  u ( y     )  q ( s ) 
 p u ( y     )  u ( y     )  u ( y   )  u ( y   )   s  0
Optimization
max v e (Q), s.t. G(q ,s) £ 0 and s ³ 0
q
 ue ( s, )  G ( , s)  0
FOC : 
(1  r )  Gs ( , s)    0
 G( , s)  0,   0 and G( , s)  0
Complementary Slackness: 
 s  0,   0, s  0.

Shadow value of collectivism = r
Shadow value of socialization = 
Boundary Equilibrium
• Complete risk pooling
*  
• MU of transfer is zero
v ( *)  0
• IC non-binding:
G ( *)  0
• No socialization
s*  0
• Shadow value of socialization = 0
*  0
Interior Equilibria
• Incomplete risk-pooling:
*  
• MU of transfer is positive:
ue ( *)  0
• IC is binding:
G ( *, s*)  0
• Optimal Socialization:
1  r  ue (ˆ( s*))ˆ '( s*)
 H ( , s)  0
Graph: Interior Equilibrium

Implementability
constraint: G(s,)=0

*
Optimal socialization:
H(s,)=0
s*
d
ds
H 0
s
 H s ( , s)
ue rq "( s)


0
e
H ( , s) (1  r )G  Gs u
Risk, Transfers and Socialization
• Equilibrium Transfer:
d *  1 
    H s G p  Gs H p   0
dp

d *  1 
    H s G  Gs H    0,
d   
• Equilibrium Socialization:
 The taste for collective
responsibility is increasing
in the frequency and size of
income shocks.
ds *  1 
    H p G  G p H   0
dp   
ds *  1 
    H  G  G H   0.
d   
III. Measuring Individual Responsibility and
Rainfall Variation
• Ronald Inglehart (2000): World Values Survey
– Five waves, 1981-2008, covering over 250,000 individuals in 89
countries.
– Question: Scale = 1 to 10:
– “People should take more responsibility to provide for themselves”
– “The government should take more responsibility to ensure that
everyone is provided for.”
– Averaged across individuals and then waves to generate a single
measure of individual responsibility for each country.
• Potential issue:
– Government responsibility is only one potential form of collective
responsibility.
– Does this variable really just measure a taste for government?
Individualism and individual
responsibility
• Gorodnichenko and Roland (2012):
– Individualism and collectivism reflect deeply held
understandings of the self, as independent or
interdependent.
– This distinction in the understanding of the self
gives rise to two sets of closely related attitudes,
beliefs and behaviors.
– A taste for individual responsibility is, therefore,
hard to distinguish (conceptually and empirically)
from individualism.
Hofstede’s Measure of Individualism
• Hofstede (1985, 2001):
– Survey of IBM employees in 70+ countries.
– Hofstede uses factor analysis to identify dimensions of cultural
variation. Individualism is the first factor.
• Hofstede (2001, p. 225) contrasts an individualistic society in
which “everyone is expected to look out for themselves,” with
a collectivist society in which people are “integrated into
strong, cohesive in-groups, which … protect them in exchange
for unquestioning loyalty.”
Schwartz (2006) measures of Individualism
• Schwartz (1996, 2006)
– Survey of K-12 teachers, college students in 50+ countries
– Affective autonomy and intellectual autonomy measure the degree to
which individuals find value in pursuing their own goals and
experiences and their own ideas or beliefs, respectively.
– Embeddedness: meaning in life comes from group identity and social
interactions.
• Schwartz (2006, 140): “In autonomy cultures, people are
viewed as autonomous, bounded entities…. [C]ultures with an
emphasis on embeddedness, people are viewed as entities
embedded in the collectivity. Meaning in life comes largely
through social relationships.”
Rainfall Variation
• Global Historical Climatology Network (GHCN) dataset: 12
million observations of monthly precipitation from over 20K
weather stations, starting in 1697. Use data from 1900
forward.
• Coefficient of variation rather than standard deviation: a
given change in rainfall matters more where rain is scarce.
• Deserts: Omit observations from low rainfall
stations/months, e.g. < 1 cm per month.
• Monthly rather than annual variation: Timing matters for
agriculture. Rain in November is not a perfect substitute for
rain in May.
Rainfall Variation
• Intertemporal vs. Interspatial Rainfall variation?
– The model is more consistent with interspatial income shocks, but
– Rosenzweig and Binswanger (1993) find that intertemporal rainfall shocks
generate contemporaneous HH income shocks.
– GHNC database does not have good data on spatial location of rainfall series.
• Contemporary or Historical Rainfall Variation?
– Historical: Better fit for the theory
– Contemporary: More counties, less prone to selection bias.
– Generate both historical (pre 1900) and contemporary (post 1900) measures
of rainfall variation
• Generate four measures of rainfall variation (corr. 0.68-0.88)
Linguistic Instrument
• Pronoun Drop: The primary language permits speakers to
drop pronouns. Kashima and Kashima (1998)
– Example:
• Spanish permits pronoun drop: “Yo amo” or “Amo.”
• English does not: “I love.”
– Licht, et al. (2007, p. 672) argue that the “grammar of a language may
transmit and reproduce culture and social categories.”
– Intuition: the subject is understood in context  collectivist.
• Abdurazokzoda and Davis (2014): revise and augment KK data
with linguistic data from the World Atlas of Language
Structures.
IV. Rainfall Variation and Individualism
• Theory: expect a negative relationship between rainfall
variation and individualism
• Empirics:
– Consider four measures of rainfall variation: intertemporal and
interspatial, contemporary and historical
– Control for land area and number of rainfall series used to compute
variable
– Consider a falsification test, based on off-season rainfall variation
– Exclude high migration countries: Latin America, Caribbean, neoEuropes.
– Consider alternative measures of individualism from Hofstede and
Schwartz
Table 2: Rainfall Variation and Individualism
VARIABLES
lncovraincm1
(1)
indresp
(2)
indresp
(3)
indresp
(4)
indresp
-1.182**
(-2.582)
sdlnspacecm1
0.00112*
(1.931)
0.000929
(1.374)
pre1900stations
Observations
R-squared
•
(8)
schw_auto
-1.191**
(-2.062)
-1.191**
(-2.311)
-60.44***
(-3.476)
-1.503**
(-2.099)
0.0408
(0.126)
0.00110*
(1.888)
0.000552
(1.470)
0.0514***
(2.803)
0.000198
(0.448)
-0.537
(-0.713)
off6_lncovraincm1
Constant
(7)
hof_idv
-1.421***
(-3.253)
pre1900sdlnspacecm1
area
(6)
indresp
-0.238
(-0.465)
pre1900lncovrain1cm
stations
(5)
indresp
-5.44e-07
(-1.520)
4.685***
(20.39)
-5.48e-07
(-1.429)
5.269***
(15.83)
0.00339***
(3.689)
-8.69e-07**
(-2.266)
4.724***
(21.04)
89
0.130
87
0.053
65
0.240
0.00297***
(2.864)
-1.05e-06**
(-2.474)
5.668***
(11.71)
-4.90e-07
(-1.222)
4.688***
(20.08)
-5.17e-07
(-1.272)
4.622***
(17.34)
-7.21e-06
(-0.510)
19.40*
(1.937)
-3.38e-07
(-0.644)
7.306***
(15.24)
58
0.158
88
0.113
73
0.107
64
0.390
49
0.238
Column 6 sample excludes Latin America, Caribbean and neo-Europes.
Two concerns with Table 2
• It may be that rainfall variation is correlated with
aspects of geography or climate that affect
individualism, directly or indirectly.
– Control for geography and climate
• Perhaps the dependent variable reflects a taste for
government, rather than individual responsibility per
se. Control for
– variables known to influence the size of the welfare state
– Proxies for economic and political ideology
Table 3: Controlling for Climate and Geography
VARIABLES
lncovraincm1
Continents
F-stat p-value
lndisteq
(1)
indresp
(2)
indresp
(3)
indresp
(4)
indresp
(5)
indresp
(6)
indresp
(7)
indresp
-1.134**
(-2.201)
Yes
0.102
-1.243**
(-2.526)
No
-1.324**
(-2.223)
No
-1.073**
(-2.088)
No
-1.222**
(-2.315)
No
-1.325***
(-2.832)
No
-1.333***
(-2.725)
No
-0.0158
(-0.207)
-0.454
(-1.266)
-0.447
(-1.487)
landlock
mich_distsea
mich_elev
-1.023***
(-3.883)
1.348***
(3.948)
mich_sd_elev
mich_precav
0.00308**
(2.041)
mich_tempav
0.000207
(0.0154)
mich_soil
-1.027*
(-1.926)
1.884
(0.989)
mich_sdsoil
mich_clim
-0.616*
(-1.677)
-0.874
(-0.932)
mich_sdclim
Observations
R-squared
89
0.174
80
0.214
80
0.234
80
0.161
80
0.137
80
0.197
80
0.169
Notes: All regressions control for the number of weather stations and land area.
Coefficients not reported. Results using historical rainfall variation are similar.
Table 4:
Controlling for Politics and Ideology
VARIABLES
lncovraincm1
(1)
indresp
(2)
indresp
(3)
indresp
(4)
indresp
(5)
indresp
(6)
indresp
(7)
indresp
(8)
indresp
-1.182**
(-2.582)
-1.737***
(-3.780)
-1.094***
(-5.143)
-1.709***
(-3.091)
-1.164***
(-4.767)
-0.000837
(-1.118)
-0.000229
(-0.0654)
-1.248***
(-3.009)
-0.871***
(-4.573)
-2.184***
(-5.175)
-1.030***
(-5.086)
-1.186**
(-2.385)
-0.823***
(-3.415)
-1.538***
(-3.668)
-0.925***
(-4.010)
-1.634***
(-4.007)
-0.888***
(-4.370)
0.292*
(1.833)
0.379***
(3.505)
-0.262**
(-2.570)
0.330*
(1.843)
76
0.355
71
0.498
leg_socialist
mich_nmbrlang
trade90s
wvs_trust
2.418***
(4.011)
wvs_rightwing
0.358***
(2.803)
wvs_stateown
-0.174
(-1.544)
wvs_compbad
Observations
R-squared
89
0.130
89
0.350
79
0.375
80
0.413
76
0.432
77
0.305
Notes: All regressions control for the number of weather stations and land area.
Coefficients not reported. Results using historical rainfall variation are similar.
V. Individualism and Economic Development
• Endogeneity of Individualism:
• Development increases individualism:
– Markets may crowd out informal exchange
– Urbanization and mobility may weaken family ties.
– OLS estimate will be biased upward.
– Development reduces individualism:
– Rise of the welfare state.
– OLS estimates will be biased downward.
• Empirical Strategy: Two-Stage Least Squares with rainfall
variation and other instruments (to allow OIR tests).
Table 5:
Individual Responsibility and Economic Development
VARIABLES
indresp
(1)
OLS
(2)
IV
0.520***
(4.780)
0.956***
(4.039)
lncovraincm1
(3)
First stage
(4)
IV
(5)
First stage
1.466***
(3.514)
(6)
IV
(7)
First
stage
1.725***
(33.76)
(8)
IV
1.005***
(4.985)
-1.737***
(-3.780)
(11)
First stage
1.104***
(3.769)
-1.701***
(-3.957)
-1.001**
(-2.068)
sdlnspacecm1
-1.016*
(-1.782)
pronoundrop
Observations
R-squared
First stage F-stat
OIR test
(10)
IV
-1.125*
(-1.944)
pre1900lncovrain1cm
leg_socialist
(9)
First stage
-0.211
(-0.900)
0.155
(0.537)
-1.094***
(-5.143)
0.400
(0.907)
-0.894***
(-3.973)
0.769**
(2.238)
-0.921***
(-3.607)
-0.0159
(-0.0558)
89
0.298
89
0.166
14.28
--
89
0.350
65
65
0.376
87
87
0.204
79
0.087
11.98
p = 0.76
15.66
--
3.17
--
-0.530*
(-1.977)
-0.763***
(-2.783)
79
0.354
0.105
(0.319)
60
-0.634**
(-2.366)
-0.544*
(-1.927)
60
0.418
11.45
p = 0.088
Notes: All regressions control for the number of weather stations and land area.
Coefficients not reported.
Economic Effect of Individual Responsibility
• The IV coefficient estimates are two to three times as large as
the OLS estimates. This is consistent with 1) measurement
error or 2) economic development increases taste for
collective responsibility (rise of the welfare state).
• The effect of individual responsibility on economic
development is large:
– Using the estimate in column (2A), a one-standard deviation increase in
individualism is associated with an income ratio of exp(0.956*0.966) = 2.54.
– The maximum observed difference in individual responsibility in our sample is
associated with an income ratio of exp(0.956*3.80) = 37.82, which is roughly
equal to the income differential between the richest and poorest five
countries.
VI. Robustness Tests
• I consider two arguments that rainfall variation may
influence economic development through channels
other than its influence in the level of individualism.
• Rainfall variation may be correlated with variables
that influence economic development through
agricultural outcomes.
• Rainfall variation may be correlated with financial or
institutional development or transfer.
Robustness: Rainfall and Agriculture
• Concern: Rainfall variation may be related to current output
through its impact on agricultural outcomes, rather than its
relationship to preindustrial social norms.
• Controls:
– Current Ag. Productivity: relative labor prod. in ag., alone and
interacted with landlocked, Matsuyama (1992).
– Historical Ag. Development: pop. density in 1500 and
technology in 1000 CE, Ashraf and Galor (2011)
– Ag. Productivity: log of average rainfall, Miguel et al. (2004)
– Suitability for agriculture: average and s.d. of suitability of the
climate and soil for agriculture, Michalopoulos (2012)
– Contemporary importance of rain-fed Ag.: Exclude SSA.
Table 6: Controlling for Agricultural Development
VARIABLES
indresp
(1A)
IV
1.333***
(4.339)
lncovraincm1
lnagprod
landagprod
(1B)
1st Stage
0.259*
(1.902)
0.251
(0.472)
(2A)
IV
(2B)
1st Stage
0.951***
(4.109)
-1.801***
(-4.652)
-0.179
(-1.603)
-0.697**
(-2.620)
ln_pd1500
Six measures
of agricultural
suitability
NO
NO
NO
NO
Observations
R-squared
First stage Fstat
62
62
0.522
79
0.201
13.96
79
0.389
(5A)
IV
-1.732***
(-3.587)
-0.523**
(-2.412)
NO
0.00344
(0.0196)
NO
89
89
0.350
12.86
(5B)
1st Stage
1.158***
(5.792)
-0.00901
(-0.108)
0.213
(0.224)
lnavrain
21.64
(3B)
1st Stage
1.385***
(3.719)
-1.792***
(-3.736)
-0.0242
(-0.244)
0.176
(0.163)
ln_CEtech1K
(3A)
IV
0.315
(1.190)
0.471
(0.922)
0.148
(0.948)
-0.520
(-0.349)
-0.439*
(-1.665)
Yes
54
0.271
21.42
(6A)
IV
(6B)
1st Stage
0.968***
(4.993)
-2.036***
(-4.730)
-0.339***
(-3.618)
-0.919***
(-2.798)
-0.116
(-0.977)
0.100
(0.0909)
0.00244
(0.0150)
Yes
54
0.722
-1.879***
(-3.785)
79
0.060
14.33
79
0.393
Note: All regressions include controls for the number of weather stations,
area, socialist history and average rainfall.
Robustness: Climate, Finance and
Institutions
• Concern: Rainfall variation may influence financial development or
be correlated with dimensions of climate that influence institutional
quality
• Controls:
• Financial development: private credit as a share of GDP, Levine (2005)
• Early Institutions: constraints on the executive in 1950 and 1900-20.
Note: Including these controls may lead to an under-estimate of the
effect of individualism on development, e.g. Tabellini (2005).
• Tropics: Distance from the Equator, Hall and Jones (1999). Note: Poor
overlap with AJR (2001) sample on settler mortality.
• Legal Origin: British, French and socialist legal origin, Djankov (2002)
• Crop Choice: natural log of the share of land suitable for wheat
relative to that suitable for sugar. Engermann and Sokoloff (1998,
2002), Easterly (2007).
Table 7: Controlling for
Financial and Institutional Development
VARIABLES
(1A)
IV
(1B)
1st Stage
indresp
1.180***
(2.710)
lncovraincm1
-1.491**
(-2.528)
0.00788** 0.00346
(2.010)
(1.149)
privatecredit
(2A)
IV
(2B)
1st Stage
1.049**
(2.523)
exconst1950
-1.720***
(-2.814)
0.00702
(0.0664)
(6B)
1st Stage
0.831**
(1.979)
-1.556***
(-2.788)
0.0592
(0.799)
leg_british
-0.0788
-0.339
(-0.180)
(-0.728)
0.00893
-0.209
(0.0223)
(-0.465)
0.350*
0.254***
(1.913)
(2.703)
1.007*
-0.147
(1.874)
(-0.206)
-0.00203** -0.000398
(-1.993)
(-0.439)
leg_french
lndisteq
lwheatsugar
mich_nmbrlang
Observations
R-squared
1st Stage F-Stat
(6A)
IV
83
0.195
6.39
83
0.371
53
7.92
53
0.391
71
0.502
7.76
71
0.432
Note: All regressions include controls for the number of weather stations,
area, socialist history and average rainfall.
Conclusions
• I argue that rainfall variation, a measure of
exogenous agricultural risk, influenced the
development of preindustrial social norms regarding
individualism and collectivism and that these norms
persist to some degree to the present.
• I develop a formal economic model showing that risk
increases the return to collectivist social norms and
present evidence that rainfall variation is negatively
related to contemporary measures of individualism.
Conclusions (cont.)
• Using rainfall variation as an instrument, I find a
positive relationship between the exogenous
variation in individualism and economic
development.
• These relationships are robust to controls for current
and historical agricultural sector development,
measures of early institutional quality, measures of
climate linked to institutional transfer and
development, and financial development.