Essays on Social Institutions and Development

Abstract

This dissertation studies the role of informal institutions in development. I focus on social institutions: those that typically preexist formal institutions and are defined by exclusive membership, seek the provision of club goods, and are sustained by enforcement mechanisms. I focus on three key properties of social institutions: (i) their cost and distributive impact, (ii) their capacity to furnish parochial collective action, and (iii) their ability to encode local knowledge.

I illustrate the first point by drawing on a field experiment conducted in a large city in the Democratic Republic of Congo that reduced the price and transaction costs of acquiring formal land titles. I argue that citizens who are more dependent on social institutions --- such as church networks, mutual aid societies, and city chiefs --- are more likely to demand and to acquire formal land titles, since property rights have the capacity to weaken the ties of social dependence engendered by these institutions. By making the benefits of formalization more apparent vis à vis informal arrangements, the study shows that the costly nature of social institutions can, in fact, contribute to the success of formalization interventions. It also documents social effects of land titling: the program crowded out participation in social institutions and negatively impacted perceptions of chiefs. When exogenously offered formal property rights, citizens are more likely to exit the very same institutions that predict their demand.

I illustrate the second point by studying the role of kinship ties in family firms, the most prevalent corporate structure in the developing world. In particular, I study the role of family ties in promoting capital formation and collective action and argue that these properties amplify the logic of interest group politics. Using previously untapped information on family ties in Brazilian listed companies, Chapter 3 documents that family firms are more likely to contribute to political campaigns and to extract rents compared to non-family firms. I argue that this is best explained by their superior capacity to build and sustain long-term relationships with political actors. Exploiting a recent Supreme Court ruling that banned corporate campaign contributions, Chapter 4 shows that, after the ban, hitherto politically active family firms were able to channel their contributions through their members, thus substituting individual for corporate contributions. Further, the chapter documents the existence of peer effects among individuals linked by family ties within a firm, consistent with the notion that such ties transmit influence that helps overcome social dilemmas. By showing that family firms are better able to adapt to a novel --- adverse --- political environment, the results illustrate how features of social structure within organizations can limit the effectiveness of reforms seeking to advance political equality.

The last chapter illustrates the third point by experimentally manipulating the identity of tax collectors in the context of a door-to-door tax collection campaign in a large Congolese city. It shows that local elites known as city chiefs are more effective at generating tax compliance and collecting revenue compared to state bureaucrats and provides evidence that this effect is explained by chiefs' superior local knowledge about citizens' willingness and ability to pay. By showing that local institutions contain useful knowledge that can be harnessed to boost essential state functions, the chapter illustrates an interesting complementarity between state and non-state actors and poses a challenge to top-down approaches to state-building.

Together, the papers in this dissertation advance our knowledge of how the success of formalization interventions critically depends on extant social institutions and, in doing so, shed light on how these affect political development.