Property investment with positive feedback?

By Daniek Zomer

This web-post applies the characteristics of Pierson's positive feedback processes on a small-scale-case, being property-investment i.e restoring a house. 

The real-estate market offers big profit opportunities. However, it is complicated for three reasons. First, „Unpredictability”: early events have a great impact and are random, and hence many outcomes are possible. Likewise, in the beginning of the investment, when the considerations of what you think will make the house more valuable result in the budget. For example, does the central-heating/floor need to be replaced? Should walls be removed? Moreover, there is asymmetrical information for you as an investor of why the house has been unused for such a long period. It might be the case that other investors know something about the house that discouraged them to invest in it, and that you will find out during the restoring process.

Secondly, „Inflexibility” and „Nonergodicity”, for instance, when you decided in the beginning to change the place of the stairs and later find out that it does not meet the „fire safety” standards that property valuers pursue. Hence, the further you are into the building process, the harder it becomes to shift from one path to another, as you already spent the money into new stairs. Furthermore, early decisions feedback into future choices for your budget.

Finally, „Potential path inefficiency” whereas in the long run, the outcome that becomes established may generate lower payoffs than a foregone alternative would have. If you would have kept the stairs, it would have saved costs or if you would not have spent the money on a new floor, you would have had the money to solve the water drainage issue that you found during the building process which would have resulted in a greater profit.

Path dependence - immigration

By Daniek Zomer

In this web-post, I explain how the immigration crisis can be explained through application of the path dependency theory. I argue that this outcome can be traced back to the development of nation states along their extension of citizenship laws through which the state defined its members. 

Events such as the French Revolution and American Constitutionalism were critical junctures that broke the ties and obligations of the individual towards the ancient regime. Consequently, these revolutions changed citizenship into an egalitarian condition, supported by a legal constitution that granted the protection of individual-rights by national institutions. At the same time, nation-states developed due to this, as citizenship laws defined the terms of belonging to the nation-state, by birth or ancestry (jus soli/ jus sanguinins). Hence, the essence of a nation-state is the institution of citizenship. 

This institutional framework provided a stable and cohesive political context in which the nation state had political power and granted rights to people living on its territory. Moreover, both models are means to define national identity. However, it also determined the definition of alien others. This has long not been problematic. 

Nevertheless, the nation-state model faces challenges these days. Such as, globalization and technological high-speed networks which reduce central control and the role of national government. This complicates the institutional path in which nation-states long have functioned as it blurs the lines of territory and increases diversity of the citizens that belong in one society. 

Thus, vague boundaries and diverse identities undermine the concept of cultural belonging to a homogeneous nation. As such, new approaches of citizenship are necessary, which include collective identities that permit many people to belong to more than one society. 

Angola vs Burundi

By Daniek Zomer

In this webpost, I apply the hypothesis that cultural fractionalization affect economic growth, as discussed by Nunn, to two African countries and analyze the outcomes. I use the method of similarity, since the two countries, Angola and Burundi are different in the aspect that Angola has exported many slaves while Burundi has not. Yet, both countries face ethnic conflict today.

Theory: how slave trade explains underdevelopment. 

Here, I focus on the former part. The theory implies that Angola would have more cultural fractionalization than Burundi, since Angola exported more slaves. Ethnic fractionalization deals with the number of distinct cultural groups in a state. The argument goes that slavery increased crime and distrust between African communities. Consequently, ethnic fractionalization weakened political structures/institutions necessary for development. Hence, my research question is: to what extent have slave trades increased crime/distrust?

First, how much do both countries differ in cultural fractionalization? Index Mundi shows that Angola has higher rates of ethnic fractionalization, and more ethnic diversity, than Burundi. Second, I analyze the responses of citizens on what they consider to be the development priorities of their country. This gives an indication about the perceived trust-culture within both countries. Surprisingly, categories that are related to crime such as anti-corruption were most prioritized by Burundians. 

Source: http://microdata.worldbank.org/index.php/catalog/1865, page 11

Additionally, Angolan citizens believed that anti-corruption, agricultural development and eduction would contribute the most to economic growth. Moreover, 9% indicated equality of opportunity. While Burundian citizens believed that energy, anti-corruption and agricultural development would be most helpful.

Finally, the theory implies that Angola would have more distrust and corruption than Burundi. Yet, while the absolute numbers show higher cultural fractionalization. It seems that Burundi has similar perceived levels of corruption/distrust which would undermine the argument that slavery increased distrust among ethnic groups.