Academic journal article Economic Inquiry

Cultural Diversity, Discrimination, and Economic Outcomes: An Experimental Analysis

Academic journal article Economic Inquiry

Cultural Diversity, Discrimination, and Economic Outcomes: An Experimental Analysis

Article excerpt

I. INTRODUCTION

Economic disparities have long existed across nations and between racial and ethnic groups within nations. Recently, economists have taken a closer look at the role of "culture" in explaining global variability in economic behavior and outcomes. One path of inquiry focuses on cross-cultural differences in behavior, as in Brandts, Saijo, and Schram (2004), Henrich (2000), Croson and Buchan (1999), Ockenfels and Weimann (1999), Burlando and Hey (1997), and Roth et al. (1991). In particular, an initiative to explore the effect of culture in 15 small-scale societies across the globe found striking variability in the outcomes of economic experiments as in Henrich et al. (2001, 2004).

Others have taken the "cultural effects" inquiry in a different direction: If cultural differences affect economic behavior and outcomes (or indeed even if they do not), do intercultural relationships affect behavior and outcomes? A controversial empirical literature has developed over the role that cultural diversity may play in explaining cross-national or cross-regional differences in economic outcomes. Some authors, for example, Easterly and Levine (1997) and Alesina et al. (2003) find that there is an inverse relationship between economic growth and cultural diversity, while others like Collier (2001) and Fearon (2003) contest this conclusion. In the United States, Alesina, Baqir, and Easterly (1997) find that cultural diversity is an important determinant of local public finances. In particular, they find an inverse relationship between diversity and spending on education, roads, and sewers, which they attribute to majority of white citizens reacting to the size of minority groups. Miguel (1999) finds similar results in Kenyan primary schools: high levels of ethnic diversity are linked to lower school funding, lower student to teacher ratio, and lower parental involvement in school functions.

One possible mechanism through which cultural diversity can affect economic behavior and outcomes is discrimination. Economists have performed many empirical analyses to identify discrimination in the marketplace and to determine the nature of the discrimination, as noted by Yinger (1998), Altonji and Blank (1999), and Riach and Rich (2002). To test for discrimination, economists depend on regression-based methods and field experiments. The former technique tests for a statistical relationship between an outcome measure, such as wage or price, and a group membership indicator, as noted by Goldberg (1996). The latter includes audit studies, for example, Neumark, Bank, and van Nort (1996) and correspondence tests, for example, Bertrand and Mullainathan (2004).

Our paper provides an experimental framework that can tie together these disparate literatures and help economists move toward a synthesis of the effects that "culture" has on economic behavior and outcomes. In particular, our analysis complements existing research in three important ways.

First, empirical analyses of the economic effects of cultural diversity at the level of communities and nations suffer from the inability to control many of the factors that affect the observed outcomes and the classic problem of having only one observation of the world at time t. By virtue of the experimenter's ability to control and manipulate the cultural diversity within laboratory sessions, our experimental framework provides a path of inquiry that can yield insight into the recent debate about the role of cultural diversity and economic outcomes in societies. In the laboratory, one can reproduce existing cultural diversity patterns or create counterfactual societies. Observations of these laboratory societies offer insight about behavior and outcomes in the naturally occurring societies outside the laboratory. We know of no other experiment that is designed to determine whether the cultural diversity of the experimental session affects the manner in which subjects make decisions. …

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