Description:

Devesh Rustagi (University of Warwick): “Market Exposure, Civic Values, and Rules”

Abstract: Does markets exposure foster or erode civic values and rules necessary to con- strain opportunistic behavior? What mechanisms drive this effect? Using a natural experiment on market emergence and location from Ethiopia, I find that market exposure fosters civic values and rule formation. This result arises because locals trade primarily in livestock, which is prone to cooperation problem from asymmetric information and weak state capacity. I find that societies develop different types of exchange structures to mitigate this problem. In societies far from markets, individuals engage in eponymous exchange within their social network, resulting in limited civic values. In societies near markets, individuals engage in impersonal ex- change, which creates a demand for trust and community sanctioning, resulting in generalized civic values. Exposure to markets without asymmetric information has no effect on civic values and rules, allowing me to rule out prosperity and contact hypothesis as alternative channels.