PEW: Edward Glaeser

Mon, Feb 25, 2019, 4:30 pm

Many commercial transactions require trust, but trust is difficult when one group consistently fears expropriation by another group. If men have a comparative advantage at violence and there is little rule-of-law, then unequal bargaining power can lead women to segregate into industrial ghettos and even to avoid entrepreneurship altogether. In this paper, we present a model of female entrepreneurship and rule of law, that predicts that women will only start businesses when they have both formal legal protection and informal bargaining power. We test this prediction using international data and with a novel dataset of Zambian manufacturing entrepreneurs. The Zambian evidence supports the importance of trust, male expropriation, and the value of rule of law for women business owners. We experimentally induce variation in local institutional quality in an adapted trust game. Improving local institutions and introducing new legal institutions can reduce the gender gap in trust and economic activity, at least in our experimental setting.

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