“…Here we explain how the decentralized updating of both preferences and contractual choices supports durable cultural and institutional differences that may provide a basis for specialization, comparative advantage, and hence trade, which in turn stabilizes the cultural and institutional differences. Our model hinges on the codetermination of institutions, cultures, and economic specialization, a nexus long-studied by economists with a historical bent (Gerschenkron, 1944;Kindleberger, 1962;Sokoloff and Engerman, 2000), but only recently modeled by economic theorists (Costinot, 2009;Bardhan, Mookherjee, and Tsumagari, 2009;Levchenko, 2007;Olivier, Thoenig, and Verdier, 2008).…”