'Us' and 'Them': The Origin of Identity, and its Economic Implications

We investigate the origins of identity and the innate proclivity to draw a distinction between "insiders" and "outsiders".We propose an evolutionary explanation: we argue that identity arises because it facilitates survival. In an evolutionary setting we endogenize preferences and demonstrate that the evolutionarily stable preferences fashioned by natural selection would draw a distinction between insiders and outsiders. We then work out the implications of such preferences in two contemporary scenarios, one entailing rent-seeking behavior and the other involving public good provision. Our results are in conformity with empirical evidence. Acknowledgements: We would like to thank participants of the CIFAR Workshop, the DIET Workshop at UBC, and the seminar participants at the Indian Statistical Institute, Dehli. We gratefully acknowledge the input of Hugh Neary.