Institutional choices, risk aversion and women rule

Two (unrelated?) papers on institutional choice… one with an innovative
methodology, the other with a cool history lesson.

“The Choice of Institutions: The Role of Risk and Risk-Aversion”
University of London
Claremont Graduate University

Institutions can affect individual behavior both via their efficiency impact
and via their risk reducing mechanisms. However there has been little study
of the relative importance of these two channels in how individuals choose
between simultaneously extant institutions. This paper presents a simple
model of institutional choice in a labor market when there is a risk/reward
trade-off, and tests the predictions of the theory. Using a novel empirical
approach that adapts an ARCH-in-mean to cross-sectional survey data from
China, we find that risk and risk aversion are strongly related to the
choice of a labor market institution. Further, risk and risk aversion are
quantitatively more important than the sectoral wage differential in
explaining employment institution choices. Specifically, we find that wage
risk has two orders of magnitude greater impact on labor market
institutional choice than the wage difference, with a one standard deviation
increase in earnings risk reducing the number of workers choosing jobs in
the private (risky) sector by 22%.

JEL Classification: P3, J21, J40

“‘Rulers Ruled By Women’ An Economic Analysis of the Rise and Fall of
Women’s Rights in Ancient Sparta”
Montana State University – Bozeman
Montana State University – Bozeman

Throughout most of history, women as a class have possessed relatively few
formal rights. The women of ancient Sparta were a striking exception.
Although they could not vote, Spartan women reportedly owned 40 percent of
Sparta’s agricultural land and enjoyed other rights that were equally
extraordinary. We offer a simple economic explanation for the Spartan
anomaly. The defining moment for Sparta was its conquest of a neighboring
land and people, which fundamentally changed the marginal products of
Spartan men’s and Spartan women’s labor. To exploit the potential gains from
a reallocation of labor – specifically, to provide the appropriate
incentives and the proper human capital formation – men granted women
property (and other) rights. Consistent with our explanation for the rise of
women’s rights, when Sparta lost the conquered land several centuries later,
the rights for women disappeared. Two conclusions emerge that may help
explain why women’s rights have been so rare for most of history. First, in
contrast to the rest of the world, the optimal (from the men’s perspective)
division of labor among Spartans involved women in work that was not easily
monitored by men. Second, the rights held by Spartan women may have been
part of an unstable equilibrium, which contained the seeds of its own

JEL Classification: D23, D70, J16, J20, K11, N33, N43