This paper employs newly-collected historical data from Finland to present evidence of historically contingent, long-run consequences of a famine. We document high levels of local inequality in terms of income and land distribution until a violent uprising in 1918. These inequalities partly originated from the famine of 1866–1868 which increased the concentration of land and power to large landowners. We further show that regions with more exposure to the famine had more labor coercion by the early 1900s. These inner tensions led to violent conflict following the Russian Revolution and the Finnish independence from the Russian Empire. Using micro-data on all the casualties of the 1918 Finnish Civil War, we demonstrate that the famine plausibly contributed to local insurgency participation through these factors. Although unsuccessful in replacing the government, the insurgency led to significant policy changes, including radical land redistribution and a full extension of the franchise. These national reforms led to a more drastic shift towards equality in locations more affected by the famine with greater pre-conflict inequality. Our findings highlight how historical shocks can have large and long-lasting, but not straightforward impacts.

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We analyse signalling and sorting in a market with frictions and private information. Buyers are heterogeneous, the sellers choose what quality to produce and post prices. Buyers do not observe quality, but infer it from prices. In equilibrium high-quality sellers signal quality with a price that is higher than under perfect information. Compared to the outcome under perfect information the higher price has two effects. First, it makes production of high-quality goods more attractive increasing its supply. Second, it makes high-valuation buyers worse-off, directing part of them to low-quality sellers. We determine which effect dominates; whether too many or too few sellers produce high quality. We also show that the prices of both high- and low-quality goods are higher, and the sellers do better and the buyers worse under private information. In addition, we show that an increase in the production cost of high quality may lead to higher profits and prices.

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