Wrapping Up
If trust is so important for well-being and social progress, policy should focus not only on building it but also protecting it. Trust, and more generally social capital, is characterized by an important asymmetry: it is much more easily destroyed than built. And a negative shock to trust can have an enduring effect on the level of cooperation within communities, as illustrated by the persistent effect of the slave trade on contemporaneous trust in Africa (Nunn, 2009): slavery was a devastating shock, whose consequences lasted for centuries.
There are important lessons from this experience, for example on the response to more recent shocks such as the rapid deregulation of markets in transition economies and the financial crisis. As documented by Aghion et al. (2010), the sharp deregulation of markets in the 1990s in former communist countries, in the context of an initially low cooperative and trusting environment, led to a rise in noncooperative values and in distrust toward others, and to a demand for the return to higher regulation to correct the negative externalities generated by antisocial attitudes. This natural experiment also shows the importance of considering the initial level of trust between individuals and in institutions before recommending any policy reform.
The recent financial crisis provides another illustration of how rapidly the stock of trust can be depleted. As shown by Algan et al. (2017), the financial crisis and the inability of European institutions to cope with its devastating economic effects led to a sharp and dramatic decline in the level of trust in institutions in some countries, especially Southern European countries that previously were the most trusting of the European project.
Governments need the trust of their people to successfully address current and future policy challenges, and to be able to convince the public about the efficacy and necessity of certain—a priori unpopular—policy choices. Inter-personal trust is an important factor for economic growth and development. The loss of trust might then explain the enduring economic crisis in some parts of the world. Trust might well be damaged persistently for generations, even after economic recovery. Insufficient measurement of nonmonetized capital (such as human, social, and natural capital) will lead policy-makers to ignore it, and to invest insufficient resources to protect it. Inadequate investment to cushion shocks, for instance in social safety nets, means that the social capital and well-being of generations could be lost forever.
We need better measures of trust, at higher frequencies, with better geographic coverage and based on more representative samples in order to analyze how trust is affected by shocks, how it can be preserved, and how relevant policies can restore and reinforce it.
Notes
1. Coleman (1990) proposes a similar distinction between “strong ties,” defined as the quality of the relationship among family members; and “weak ties,” defined as the strength of social relationships outside the family circle.
2. For instance, by comparing Americans of Italian and German origin whose forebears migrated between 1950 and 1980, you can detect differences in trust inherited from these two source countries between 1950 and 1980. You can get time-varying measures of trust inherited from these two countries by running the same exercise for forebears who immigrated in other periods, for instance between 1920 and 1950.
3. This issue could be addressed in future research by looking at inequality in market income, i.e., before redistribution.
References
Acemoglu, D., J. Robinson, and S. Johnson (2001), “The colonial origins of comparative development: An empirical investigation,” American Economic Review, Vol. 91, pp. 1369–1401.
Aghion, P. et al. (2010), “Regulation and distrust,” Quarterly Journal of Economics, Vol. 125(3), pp. 1015–1049.
Aghion, P., Y. Algan, and P. Cahuc (2011), “Can policy affect culture? Minimum wage and the quality of labor relations,” Journal of the European Economic Association, Vol. 9(1), pp. 3–42.
Alesina, A. and E. La Ferrara (2000), “Participation in heterogeneous communities,” Quarterly Journal of Economics, Vol. 115(3), pp. 847–904.
Algan, Y. et al. (2017), “The European trust crisis and the rise of populism,” Brookings Papers on Economic Activity.
Algan, Y. et al. (2015), “Social motives and the organization of production: Experimental evidence from open source software,” Sciences Po Working Paper.
Algan, Y. et al. (2012), “The long-term impact of social skills training at school entry: A randomized controlled trial,” working paper.
Algan, Y. and P. Cahuc (2014), “Trust, growth and well-being: New evidence and policy implications,” in Aghion, P. and S. Durlauf (eds.), Handbook of Economic Growth, Vol. 2, Elsevier, North-Holland, Amsterdam, pp. 49–120.
Algan, Y. and P. Cahuc (2010), “Inherited trust and growth,” American Economic Review, Vol. 100, pp. 2060–2092.
Algan, Y. and P. Cahuc (2009), “Civic culture and labor market institutions,” American Economic Journal: Macroeconomics, Vol. 1(1), pp. 1–55.
Algan, Y., P. Cahuc, and A. Shleifer (2013), “Teaching practices and social capital,” American Economic Journal: Applied Economics, Vol. 5(3), pp. 189–210.
Almond, G. and S. Verba (1989), The Civic Culture: Political Attitudes and Democracy in Five Nations (first published 1963), Sage Publications, London.
Anderson, S.P., J. Goeree, and C.A. Holt (1998), “A theoretical analysis of altruism and decision error in public goods games,” Journal of Public Economics, Vol. 70(2), pp. 297–323.
Andreoni, J. (1989), “Giving with impure altruism: Applications to charity and Ricardian equivalence,” Journal of Political Economy, Vol. 97(6), pp. 1447–1458.
Arber, S. and J. Ginn (2004), “Ageing and gender: Diversity and change,” Social Trends, Vol. 34, Office for National Statistics, London, pp. 1–14.
Arnett, J.J. (2008), “The neglected 95%: Why American psychology needs to become less American,” American Psychologist, Vol. 63(7), pp. 602–614.
Arrow, K.J. (1972), “Gifts and exchanges,” Philosophy & Public Affairs, Vol. 1(4), pp. 343–362.
Banfield, E. (1958), The Moral Basis of a Backward Society, Free Press, New York.
Bardhan, P. (2000), “Irrigation and cooperation: An empirical analysis of 48 irrigation communities in South India,” Economic Development and Cultural Change, Vol. 48(4), pp. 847–865.
Benabou, R. and J. Tirole (2006), “Incentives and prosocial behavior,” American Economic Review, Vol. 96(5), pp. 1652–1678.
Benz, M. and S. Meier (2008), “Do people behave in experiments as in the field? Evidence from donations,” Experimental Economics, Vol. 11(3), pp. 268–281.
Berg, J., J. Dickhaut, and K. McCabe (1995), “Trust, reciprocity and social history,” Games and Economic Behavior, Vol. 10, pp. 122–142.
Bertrand, M. and A. Schoar (2006), “The role of family in family firms,” Journal of Economic Perspectives, Vol. 20(2), pp. 73–96.
Beugelsdijk, S. (2006), “A note on the theory and measurement of trust in explaining differences in economic growth,” Cambridge Journal of Economics, Vol. 30(3), pp. 371–387.
Bisin, A. and T. Verdier (2001), “The economics of cultural transmission and the dynamics of preferences,” Journal of Economic Theory, Vol. 97, pp. 298–319.
Blind, P.K. (2007), “Building trust in government in the twenty-first century: Review of literature and emerging issues,” 7th Global Forum on Reinventing Government—Building Trust in Government, pp. 26–29.
Bloom, N., R. Sadun, and J. van Reenen (2012), “The organization of firms across countries,” Quarterly Journal of Economics, Vol. 127(4), pp. 1663–1705.
Boarini, R. et al. (2012), “What makes for a better life? The determinants of subjective well-being in OECD countries—evidence from the Gallup World Poll,” OECD Statistics Working Papers, No. 2012/03, OECD Publishing, Paris, http://dx.doi.org/10.1787/k9b9ltjm937-en.
Bohnet, I. and R. Zeckhauser (2004), “Trust, risk and betrayal,” Journal of Economic Behavior & Organization, Vol. 55, pp. 467�
�484.
Boreham, N.C., R. Samurçay, and M. Fischer (eds.) (2002), Work Process Knowledge, Routledge, London.
Bowles, S. and H. Gintis (2007), “Power,” University of Massachusetts–Amherst Economics Department Working Paper Series, No. 2007-03.
Bowles, S. and S. Polania-Reyes (2012), “Economic incentives and social preferences: Substitutes or complements?,” Journal of Economic Literature, Vol. 50(2), pp. 368–425.
Bruni, L. and G. Ferri (2016), “Does cooperativeness promote happiness? Cross-country evidence,” Money and Finance Research group (Mo.Fi.R.), Marche Politecnica University, Department of Economic and Social Sciences Working Paper, No. 107.
Charron, N. (2016), “Do corruption measures have a perception problem? Assessing the relationship between experiences and perceptions of corruption among citizens and experts,” European Political Science Review, Vol. 8(1), pp. 147–171.
Coleman, J.S. (1990), Foundations of Social Theory, Belknap Press of Harvard University Press, Cambridge, MA.
Coleman, J.S. (1974), Power and the Structure of Society, Norton, New York.
Cox, J., 2004, “How to identify trust and reciprocity,” Games and Economic Behavior, Vol. 46, pp. 260–281.
Dasgupta, P. (2005), “The economics of social capital,” Economic Record, Vol. 81, Issue supplement S1, pp. S2–S21.
Dasgupta, P. and I. Serageldin (eds.) (2000), Social Capital: A Multifaceted Perspective, World Bank, Washington, DC.
Daude, C., H. Gutiérrez, and Á. Melguizo (2012), “What drives tax morale?,” OECD Development Centre Working Papers, No. 315, OECD Publishing, Paris, http://dx.doi.org/10.1787/k8zk8m61kzq-en (accessed on 7 June 2018).
Delhey, J., K. Newton, and C. Welzel (2011), “How general is trust in ‘most people’? Solving the radius of trust problem,” American Sociological Review, Vol. 76(5), pp. 786–807.
Dixit, A.K. (2004), Lawlessness and Economics—Alternative Models of Governance, Princeton University Press, Princeton.
Ermisch, J. and D. Gambetta (2010), “Do strong family ties inhibit trust?,” Journal of Economic Behavior and Organisation, Vol. 75(3), pp. 365–376.
Ermisch, J. et al. (2009), “Measuring people’s trust,” Journal of the Royal Statistical Society, Series A, Vol. 172(4), pp. 749–769.
Falk, A. and U. Fischbacher (2006), “A theory of reciprocity,” Games and Economic Behavior, Vol. 54, pp. 293–315.
Falk, A. et al. (2016), “The preference survey module: A validated instrument for measuring risk, time, and social preferences,” University of Bonn Working Paper.
Farrell, H. (2009), The Political Economy of Trust Institutions, Interests, and Inter-firm Cooperation in Italy and Germany, Cambridge University Press, Cambridge, MA.
Fehr, E. (2009), “On the economics and biology of trust,” Presidential address at the 2008 meeting of the European Economic Association, Journal of the European Economic Association, Vol. 7(2–3), pp. 235–266.
Fehr, E. and K.M. Schmidt (1999), “A theory of fairness, competition, and cooperation,” Quarterly Journal of Economics, Vol. 114(3), pp. 817–868, https://doi.org/10.1162/003355399556151 (accessed on June 7, 2018).
Fehr, E. and S. Gachter (2000), “Cooperation and punishment in public goods games,” American Economic Review, Vol. 4, pp. 980–994.
Fehr, E. et al. (2002), “A nation-wide laboratory: Examining trust and trustworthiness by integrating behavioral experiments into representative surveys,” CESifo Working Paper.
Frey, B. (1998), “Institutions and morale: The crowding-out effect,” in Putterman, L. and A. Ben-Ner (eds.), Economics, Values, and Organization, pp. 437–460, Cambridge University Press, Cambridge.
Frey, B., M. Benz, and A. Stutzer (2004), “Introducing procedural utility: Not only what, but also how matters,” Journal of Institutional and Theoretical Economics (JITE) / Zeitschrift für die gesamte Staatswissenschaft, Vol. 160(3), pp. 377–401.
Frey, B. and A. Stutzer (2006), “Does marriage make people happy, or do happy people get married?,” Journal of Behavioral and Experimental Economics, Vol. 35(2), pp. 326–347.
Frey, B. and A. Stutzer (2005), “Happiness research: State and prospects,” Review of Social Economy, Vol. 63, pp. 207–228.
Fukuyama, F. (1995), Trust: The Social Virtues and the Creation of Prosperity, Free Press, New York.
Gambetta, D. (1993), The Sicilian Mafia: The Business of Private Protection, Harvard University Press, Cambridge, MA.
Gintis, H. et al. (2005), Moral Sentiments and Material Interests: The Foundations of Cooperation in Economic Life, MIT Press, Cambridge, MA.
Glaeser, E.L. et al. (2004), “Do institutions cause growth?,” Journal of Economic Growth, Vol. 9, pp. 271–303.
Glaeser, E.L. et al. (2000), “Measuring trust,” Quarterly Journal of Economics, Vol. 115(3), pp. 811–846.
Glaeser, E.L., G. Ponzetto, and A. Shleifer (2007), “Why does democracy need education?,” Journal of Economic Growth, Vol. 12, pp. 77–99.
Glass, T.A. and J.L. Balfour (2003), “Neighborhoods, aging and functional limitations,” in Kawachi, I. and L.F. Berkman, Neighborhoods and Health, Oxford University Press, New York.
Greenwald, A.G. et al., (2002), “A unified theory of implicit attitudes, stereotypes, self-esteem, and self-concept,” Psychological Review, Vol. 109, pp. 3–25.
Greif, A. (1994), “Theoretical reflection on collectivist and individualist societies,” Journal of Political Economy, Vol. 102(5), pp. 912–950.
Greif, A. (1993), “Contract enforceability and economic institutions in early trade: The Maghribi traders’ coalition,” American Economic Review, Vol. 83(3), pp. 525–548.
Guiso, L., P. Sapienza, and L. Zingales (2011), “Civic capital as the missing link,” in Benhabib, J., A. Bisin, and M.O. Jackson (eds.), Handbook of Social Economics, Vol. 1A, Elsevier Science, North-Holland, Amsterdam.
Guiso, L., P. Sapienza, and L. Zingales (2008), “Long-term persistence,” National Bureau of Economic Research Working Paper, No. 14278.
Hamano, T. et al. (2010), “Social capital and mental health in Japan: A multilevel analysis,” PLoS ONE, Vol. 5(10), https://doi.org/10.1371/journal.pone.0013214 (accessed on June 7, 2018).
Hardin, R. (2004), Trust and trustworthiness, Russell Sage Foundation, New York.
Heckman, J.J. and T.D. Kautz (2012), “Hard evidence on soft skills,” Labour Economics, Vol. 19(4), pp. 451–464.
Heckman, J.J. et al. (2013), “Understanding the mechanisms through which an influential early childhood program boosted adult outcomes,” American Economic Review, Vol. 103(6), pp. 2052–2086.
Helliwell, J. (2007), “Well-being and social capital: Does suicide pose a puzzle?,” Social Indicators Research, Vol. 81(3), pp. 455–496.
Helliwell, J. and R. Putnam (2007), “Education and social capital,” Eastern Economics Journal, Vol. 33(1), pp. 1–19.
Helliwell, J. and R. Putnam (2004), “The social context of well-being,” Philosophical Transactions of the Royal Society B: Biological Sciences, Vol. 359(1449), pp. 1435–1446.
Helliwell, J. and S. Wang (2011), “Weekends and subjective well-being,” National Bureau of Economic Research Working Paper, No. 17180.
Helliwell, J. et al. (2009), “International evidence on the social context of well-being,” National Bureau of Economic Research Working Paper, No. 14720.
Henrich, J. et al. (2001), “In search of homo economicus: Behavioral experiments in 15 small-scale societies,” American Economic Review.
Herrmann, B., C. Thöni, and S. Gächter (2008), “Antisocial punishment across societies,” Science, Vol. 319(5868), pp. 1362–1367.
Hoff, K., M. Kshetramade, and E. Fehr (2011), “Caste and punishment: the legacy of caste culture in norm enforcement,” Economic Journal, Vol. 121(556), pp. F449–F475, https://doi.org/10.1111/j.1468-0297.2011.02476.x.
Hoff, K. and J.E. Stiglitz (2016), “Striving for balance in economics: Towards a theory of the social determination of behavior,” Policy Research Working Paper
Series 7537, World Bank.
Holm, H. and A. Danielson (2005), “Tropic trust versus Nordic trust: Experimental evidence from Tanzania and Sweden,” Economic Journal, Vol. 115, pp. 505–532.
Intawan, C. and S.P. Nicholson (2017), “My trust in government is implicit: Automatic trust in government and system support,” unpublished manuscript.
Karlan, D. (2005), “Using experimental economics to measure social capital and predict financial decisions,” American Economic Review, Vol. 95(5), pp. 1688–1699.
Klijn, E.H., J. Edelenbos, and B. Steijn (2010), “Trust in governance networks; its impact and outcomes,” Administration and Society, Vol. 42(2), pp. 193–221.
Knack, S. and P. Keefer (1997), “Does social capital have an economic payoff? A crosscountry investigation,” Quarterly Journal of Economics, Vol. 112(4), pp. 1252–1288.
Kosfeld, M. et al. (2005), “Oxytocin increases trust in humans,” Nature, Vol. 435, pp. 673–676.
Kumlin, S. and B. Rothstein (2005), “Making and breaking social capital: The impact of welfare state institutions,” Comparative Political Studies.
La Porta, R. et al. (1997), “Trust in large organizations,” American Economic Review, Papers and Proceedings, Vol. 87(2), pp. 333–338.
Laury, S.K. and L.O. Taylor (2008), “Altruism spillovers: Are behaviors in context-free experiments predictive of altruism toward a naturally occurring public good?,” Journal of Economic Behavior & Organization, Vol. 65(1), pp. 9–29.
Lazzarini, S. et al. (2005), “Measuring trust: An experiment in Brazil,” Brazilian Journal of Applied Economics, Vol. 9(2), pp. 153–169.
For Good Measure Page 50