Edited by Christopher J. Coyne and Rachel L. Mathers
Chapter 4: Can’t We All Just Get Along? Fractionalization, Institutions and Economic Consequences
Peter T. Leeson and Claudia R. Williamson 4.1 INTRODUCTION It’s often said that “variety is the spice of life.” When it comes to kinds of people, variety can be a spice; but it can also be poison. On the one hand, the gains from specialization and exchange under the division of labor are potentially larger when individuals are diverse. On the other hand, the differences between individuals can be a divisive force that catalyzes destructive conflict. This chapter considers social differences, how institutions affect them and their relationship to economic outcomes. Broadly speaking, consideration of such questions falls under the rubric of studies examining what the social science literature calls “fractionalization.” A fractionalized society is one with numerous, socially distant groups. The social distance in question, or what is the same, the relevant lines of demarcation distinguishing different social groups, can have many sources. In principle, any cause for notable difference between the members of various groups may be a source of social distance. In practice, social scientists have focused their attention on several common sources of such distance: ethnicity, language and religion. This makes sense since important social cleavages often fall along ethno-linguistic and/or religious lines. Social scientists have attempted to measure fractionalization in several ways. In the early 1960s a team of Soviet researchers constructed the first such measure, which reflects the probability that two randomly selected individuals belong to different ethnolinguistic groups. Using this measure, fractionalization increases when there are many small social groups and reaches its...
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