Market Exposure, Civic Values, and Rules

Abstract

Does exposure to markets foster or erode civic values and rules necessary to constrain opportunistic behavior for collective action? What mechanisms drive this effect? I investigate these questions using a natural experiment in Ethiopia, where markets evolved accidentally from military camps and their locations were determined by geographical suitability to defence rather than prospect for trade. Using market distance as a proxy for market exposure, I compare individuals who are from the same clan and attend the same market but vary in their distance to that market. I find a large negative effect of market distance on seven different experimental and survey measures of civic values and rules. Vignette studies reveal that these results arise because trade occurs primarily in livestock, which is prone to asymmetric information. In areas near markets, impersonal interactions create a demand for civic values and rules to foster exchange. In areas father from markets repeated interactions foster exchange and there is no need for civic values and rules. Falsifications tests show that when the scope of asymmetric information is limited, market exposure has no effect on civic values and rules.