Cultural identity, mobility, and decentralization

Regional cultural identity increases trust and facilitates interaction between native citizens ('social capital'). At the same time, it also affects non-native's migration decisions and their utility as it excludes non-native mobile workers from economic interaction within the region. Policies to increase regional cultural identity thus exert an externality that is negative for a basic model where future local productivity is exogenous and random, leading to the result of oversupply of regional culture under decentralization. If migration affects productivity, the basic result of oversupply may be reversed, depending on production technology and the government's objective function. Some positive and normative conclusions for cultural policy are derived.