A different look at Lenin's legacy: Social capital and risk taking in the two Germanies

What are the long-term e¤ects of Communism on economically relevant notions such as social trust, fairness, and scope of cooperation? To answer this question, we study the post-uni…cation trajectory of convergence between East and West German individuals with regard to trust, cooperation, and risk. Our hypotheses are derived from a model of German uni…cation that incorporates individual responses both to incentives and to values inherited from earlier generations as recently suggested in the literature. Using two waves of balanced panel data, we …nd that despite twenty years of uni…cation East Germans are still characterized by a persistent level of social distrust. In comparison to West Germans, they are less inclined to see others as cooperative. East Germans are also found to have been more risk loving than West Germans. However, risk attitudes fully converged recently. JEL classi…cation: P51, Z13 Keywords: Social trust; Risk Attitudes; Political Regimes; German Uni…cation Correspondence: Institute for Empirical Research in Economics, University of Leipzig, Grimmaische Str. 12, D-04109 Leipzig, Germany ([email protected]); University of Bamberg, Feldkirchenstr. 21, D-96052 Bamberg, Germany ([email protected]) We are grateful to the editor and two anonymous referees for comments that helped to markedly improve the present study. Our thanks are also due to Wei-Chiao Huang, Penny Goldberg, Friedrich Heinemann, Mathias Ho¤mann, Thomas Siedler, Justus Haucap, Joachim Winter, Andreas Hau‡er, Alexander von Kotzebue, participants of the Eastern Economic Association Annual Conference at New York, the Verein für Socialpolitik Annual Meeting, the CESifo Workshop on Political Economy, and the DIW-SOEP User Conference as well as participants of the University of Zurich, ETH Zurich, KOF joint seminar and seminars at Dresden University of Technology, the University of Munich, the Free University of BolzanoBozen, the University of Bamberg, and the University of Leipzig for valuable comments, suggestions, and fruitful discussions. Especially, we thank Marco Sunder for pointing us to several modi…cations that led to a signi…cant improvement of the empirical part of our study. The usual disclaimer applies.