Ethnic Diversity, Social Norms and Elite Capture: Theory and Evidence from Indonesia

Elite capture is a natural concern regarding decentralization. We highlight the effects of ethnic diversity and social norms on extent such capture. Ethnic diversity, through differences in preference for public goods, facilitates However, this may be counteracted by that promote cooperative behaviour within communities. test these theoretical predictions using community-level data from 1997 2007 Indonesian Family Life Survey rounds, with fiscal decentralization being implemented between. exploit particular institutional feature communities—namely, observance traditional ‘Adat’ laws to proxy coordination across groups. Overall, we find depresses development spending after decentralization, particularly where Adat (which an ethic mutual cooperation) are not followed. The opposite observed non-developmental items.