Endogenous (in)formal institutions

Despite the substantial evidence documenting the relevance of democracy and a
culture of cooperation, we still lack a framework that identies their origins and interaction.
In a model in which citizens and elite members try to share consumption risk
and cooperate in investment, we show that the elite's willingness to grant democracy
is mainly driven by investment-specic factors, and accumulation of culture has an
inverted U-shaped relationship with the forces aggravating consumption risk. Also,
shocks shrinking the investment value can push the citizens to over-invest in culture to
credibly commit to future cooperation and so preserve democracy. This is consistent
with the geography and the evolution of monasticism and politics in medieval Europe.