Jared Rubin

Institutions, the Rise of Commerce and the Persistence of Laws: Interest Restrictions in Islam and Christianity

Why was economic development retarded in the Middle East relative to Western Europe, despite the Middle East being far ahead for centuries? A theoretical model inspired and substantiated by the history of interest restrictions suggests that this outcome emanates in part from the greater degree to which early Islamic political authorities derived legitimacy from religious authorities. This entailed a feedback mechanism in Europe in which the rise of commerce led to the relaxation of interest restrictions while also diminishing the Church’s ability to legitimise political authorities. These interactions did not occur in the Islamic world despite equally amenable economic conditions.

Printing and Protestants: An Empirical Test of the Role of Printing in the Reformation

The causes of the Protestant Reformation have long been debated. This paper seeks to revive and econometrically test the theory that the spread of the Reformation is linked to the spread of the printing press. I test this theory by analyzing data on the spread of the press and the Reformation at the city level. An econometric analysis that instruments for omitted variable bias with a citys distance from Mainz, the birthplace of printing, suggests that cities with at least one printing press by 1500 were at minimum 29 percentage points more likely to be Protestant by 1600.

Endogenous Group Formation via Unproductive Costs

Sacrifice is widely believed to enhance cooperation in churches, communes, gangs, clans, military units, and many other groups. We find that sacrifice can also work in the lab, apart from special ideologies, identities, or interactions. Our subjects play a modified VCM game—one in which they can voluntarily join groups that provide reduced rates of return on private investment. This leads to both endogenous sorting (because free-riders tend to reject the reduced-rate option) and substitution (because reduced private productivity favours increased club involvement). Seemingly unproductive costs thus serve to screen out free-riders, attract conditional cooperators, boost club production, and increase member welfare. The sacrifice mechanism is simple and particularly useful where monitoring difficulties impede punishment, exclusion, fees, and other more standard solutions.

Principal–Agent Settings with Random Shocks

Using a gift exchange experiment, we show that the ability of reciprocity to overcome incentive problems inherent in principal-agent settings is greatly reduced when the agent’s effort is distorted by random shocks and transmitted imperfectly to the principal. Specifically, we find that gift exchange contracts without shocks encourage effort and wages well above standard predictions. However, the introduction of random shocks reduces wages and effort, regardless of whether the shocks can be observed by the principal. Moreover, the introduction of shocks significantly reduces the probability of fulfilling the contract by the agent, the payoff of the principal, as well as total welfare.

An Agent-Based Model Of Centralized Institutions, Social Network Technology, and Revolution

This paper sheds light on the general mechanisms underlying large-scale social and institutional change. We employ an agent-based model to test the impact of authority centralization and social network technology on preference falsification and institutional change. We find that preference falsification is increasing with centralization and decreasing with social network range. This leads to greater cascades of preference revelation and thus more institutional change in highly centralized societies and this effect is exacerbated at greater social network ranges. An empirical analysis confirms the connections that we find between institutional centralization, social radius, preference falsification, and institutional change.

Social Insurance, Commitment, and the Origin of Law: Interest Bans in Early Christianity

Despite the historical importance of ideology‐based, economically inhibitive laws, we know little about the economic factors underlying their origin. This paper accounts for the historical emergence of one such law: the Christian ban on taking interest—a doctrine that shaped the evolution of numerous financial contracts and related organizational forms. A game‐theoretic analysis and historical evidence suggest that the Church’s commitment to providing social insurance for its poorest constituents encouraged risky borrowing, which the Church attempted to limit by banning interest. The analysis highlights the applicability of the rational choice framework to seemingly irrational actions and laws, the role of nonmonetary sanctions in circumventing commitment problems, and the importance of economic forces vis‐à‐vis ideology.

Printing and Protestants: Reforming the Economics of the Reformation

The causes of the Protestant Reformation have long been debated. This paper attempts to revive and econometrically test the theory that the spread of the Reformation is linked to the spread of the printing press. The proposed causal pathway is that the printing press permitted the ideas of the Reformation to reach a broader audience. I test this hypothesis by analyzing data on the spread of the press and the Reformation at the city level. An econometric analysis which instruments for omitted variable bias suggests that within the Holy Roman Empire, cities within 10 miles of a printing press by 1500 were 57.4 percentage points more likely to be Protestant by 1600. These results are robust, though the effects are weaker, across Western Europe. The analysis also suggests that the early spread of press affected religious choice into the 19th century.

The Financial Power of the Powerless: Socio-Economic Status and Interest Rates under Partial Rule of Law

In advanced economies interest rates generally vary inversely with the borrower’s socio-economic status, because status tends to depend inversely on default risk. Both of these relationships depend critically on the impartiality of the law. Specifically, they require a lender to be able to sue a recalcitrant borrower in a sufficiently impartial court. Where the law is markedly biased in favor of elites, privileged socio-economic classes will pay a premium for capital. This is because they pose a greater risk to lenders who have limited means of punishing them. Developing the underlying theory, this paper also tests it through a data set consisting of judicial records from Ottoman Istanbul, 1602-1799. Pre-modern Istanbul offers an ideal testing ground, because rule of law existed but was highly partial. Court data show that titled elites, men, and Muslims all paid higher interest rates conditional on various loan characteristics. A general implication is that elites have much to gain from instituting impartially enforced rules in financial markets even as they strive to maintain privileges in other domains. It is no coincidence that in the Ottoman Empire the beginnings of legal modernization included the establishment of relatively impartial commercial courts.

Loss Aversion and the Quantity-Quality Tradeoff

Firms face an optimization problem that requires a maximal quantity output given a quality constraint. But how do firms incentivize quantity and quality to meet these dual goals, and what role do behavioral factors such as loss aversion play in the tradeoffs workers face? We address these issues with a theoretical model and an experiment in which participants are paid for both quantity and quality of a real effort task. Consistent with the basic economic theory, higher quality incentives encourage participants to shift their attention from quantity to quality. However, we also find that loss averse subjects shift their attention from quality to quantity to a greater degree when quality is weakly incentivized. These results can inform managers of the most appropriate ways to structure contracts.

Political Legitimacy and Technology Adoption

A fundamental question of economic and technological history is why some civilizations adopted new and important technologies and others did not. In this paper, we construct a simple political-economy model that suggests that rulers may not accept a productivity-enhancing technology when it negatively affects an agents ability to provide the ruler legitimacy. However, when other sources of legitimacy emerge, the ruler will accept the technology as long as the new legitimizing source is not negatively affected. This insight helps explain the initial blocking but eventual accepting of the printing press in the Ottoman Empire and industrialization in tsarist Russia.