Rationality, ethnicity and institutions: A survey of issues and results

Abstract

This paper focuses on the relationship between institutions and ethnocentrism as discussed in the rational choice literature. The institutional environment can influence both the formation and the expression of ethnic tastes by rational individuals. Ethnocentrism is likely to be mitigated by, on the one hand, a private sector characterized by a wide and competitive market with effective property right and antitrust law enforcement provided by non-ethnic institutions and, on the other hand, a public sector which is characterized by institutional restrictions on the differential fiscal or regulatory treatment on the basis of ethnicity, a redistributive system based on non-ethnic criteria and finally, the possibility for decentralized collective decision making. These insights may be of particular utility when designing the institutions of potentially divided multiethnic states. © Blackwell Publishing Ltd. 2005.