Diversity, Institutions and Economic Outcomes

Why may social diversity be bad for growth? In this thesis, I arguethat diversity affects the extent of information asymmetries thatdetermine the design of contracts and institutions. Becauseinformation asymmetries generate information rents, these contractsand institutions foster lower economic growth and persist over time.I proceed as follows: First, I model the impact of workforcediversity on the design of contracts and the shape of the firm. Ifind that diversity decreases the incentives given inprincipal-agent interactions and multiplies the number of layersbureaucracies need. Furthermore, the relation between diversity andproductivity is institution dependent. Second, I compare the spreadof industrialization in Japan and British India; and I provide newevidence of the organization, managerial beliefs, and workforcediversity of the three biggest textile centers in Bombay province. Ifind that workforce diversity was pervasive in British India, butnot in Japan, allowing the latter but not the former to introduceorganizational improvements and develop. In British India, centerswith higher workforce diversity had more supervisors per worker andtheir managers were the most likely to believe that their workerswere lazy