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to seminar participants at Harvard University (Saguaro Seminar, October 1998), Stanford University, and Ente Einuadi for very useful comments. We also thank Erzo Luttrner for sharing data and Spencer Glendon for help with data sources. This research is supported by an NSF grant to the NBER. We are grateful to both organizations for their support. Alesina also gratefully acknowledges financial support from the

We survey and asses the literature on the positive and negative effects of ethnic diversity on economic policies and outcomes. Our focus is on countries, on cities in developed countries (the US) and on villages in developing countries. We also consider the endogenous formation of political jurisdictions and we highlight several open issues in need of further research.

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This paper studies both theoretically and empirically the determinants of group formation and of the degree of participation when the population is heterogeneous, both in terms of income and race or etimicity. We are especially interested in whether and how much the degree of heterogeneity in communities influences the amount of participation in different types of groups.Using survey data on group membership and data on US localities, we find that, after controlling for many individual characteristics, participation in social activities is significantly lower in more unequal and in more racially or ethnically fragmented localities. We also find that those individuals who express views against racial mixing are less prone to participate in the groups the more racially heterogeneous their community is.