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Diversity, Institutions and Economic Outcomes


Why may social diversity be bad for growth? In this thesis, I argue

that diversity affects the extent of information asymmetries that

determine the design of contracts and institutions. Because

information asymmetries generate information rents, these contracts

and institutions foster lower economic growth and persist over time.

I proceed as follows: First, I model the impact of workforce

diversity on the design of contracts and the shape of the firm. I

find that diversity decreases the incentives given in

principal-agent interactions and multiplies the number of layers

bureaucracies need. Furthermore, the relation between diversity and

productivity is institution dependent. Second, I compare the spread

of industrialization in Japan and British India; and I provide new

evidence of the organization, managerial beliefs, and workforce

diversity of the three biggest textile centers in Bombay province. I

find that workforce diversity was pervasive in British India, but

not in Japan, allowing the latter but not the former to introduce

organizational improvements and develop. In British India, centers

with higher workforce diversity had more supervisors per worker and

their managers were the most likely to believe that their workers

were lazy.

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