Essays on the Political Economy of City Status

This dissertation studies the political economy of city status and its historical role in promoting development. The status of a city was a set of political institutions that altered the governance of towns it was bestowed upon, making towns into cities and townsmen into citizens. The three essays of this dissertation explore why and how alternative city-level political institutions may result in different development outcomes, and how individuals may dynamically interact with and respond to political institutions. I highlight the role of the distribution of political power between the landed and the urban elites as key to understanding the consequences of city status. In this dissertation, I utilize a variety of methods such as archival research, game-theoretic modeling, historical and qualitative analysis, case studies, geographic information system mapping as well as econometric analysis.

In Chapter 2, I develop a formal model of city formation with political control by landed or urban elites. I show how technological limitations faced by the landed elites, a result of their dependence on the scarcely available land as a production input, constrain optimal allocation decisions for employing complementary production inputs, labor, and productive public goods. The model predicts that political control by landed elites will result in cities with a smaller equilibrium population size and with fewer public goods being provided.

In Chapter 3, I argue that institutions privileging urban at the expense of landed elites may generate better outcomes even in the absence of democracy and may actually outperform democracy if it leads to political control by landed elites. Using original town-level data, I draw on evidence from an 1869 city reform in Congress Poland which deprived three-quarters of the 452 cities of their city status, giving political rights to landed but not urban elites. I show that degraded cities experienced a 64 percentage points slower population growth over the next 40 years. City status was associated with greater public goods provision and more effective judiciary in remaining cities and contributed to a relative agrarianization of degraded cities. I discuss implications for our understanding of the role of inclusive institutions in promoting development.

Chapter 4 explores how individuals may contest unfavorable formal institutions, resulting in the development of norms that directly counter these institutions. The theoretical framework developed in this chapter serves to provide an explanation for how formal institutions may persist even long after their demise, and why the direction of this persistence does not need to replicate equilibria that formal institutions were meant to sustain. To investigate this empirically, I study the long-term effects of the 1869 city reform to show how formal city-level institutions that have been unfavorable to entrepreneurship have led to the development of strong pro-entrepreneurship norms that have persisted until the present and make the populations of towns with previously unfavorable institutions more entrepreneurial now.