Can Policy Crowd Out Culture?

Policies may change the returns to transmitting cultural norms to the next generation, unintentionally changing cultural practices. I study cultural norms that determine which children support their parents in their old age in Indonesia and Ghana. Consistent with a model where these norms play the dual role of increasing old age support and ameliorating incomplete contracting problems between parents and children, parents invest more in the human capital of the children who are more likely to care for them in old age. In both Indonesia and Ghana, the entry and expansion of pension plans crowds out human capital investment in the children targeted by the norms. Moreover, consistent with a model where transmission of the norm is costly and parents choose how much to invest in transmitting the norm to their children, the pension plans also crowd out the practice of the norms. Thus, policy crowds out culture. ∗University of Toronto, Contact: [email protected]. I gratefully acknowledge the support of the NSF graduate research fellowship and the Harvard Inequality and Social Policy Fellowship. I am deeply indebted to my advisors, Asim Khwaja and Nathan Nunn, for their guidance and encouragement. I am also grateful to Nava Ashraf, David Baqaee, Gustavo Bobonis, David Figlio, Claudia Goldin, Marco GonzalezNavarro, Christopher Jencks, Peter Morrow, Michel Serafinelli, Aloysious Siow, and Alessandra Voena, as well as participants in the Harvard Development, Labor, and History Workshops, members of the Harvard Proseminar on Inequality and Social Policy, and attendees of the University of Toronto Junior Applied Microseminar for their helpful comments. Eva Ng and Palermo Penano provided exceptional research assistance.