Do Trust and Trustworthiness Pay Off?

Abstract

Are individuals who trust others better off than those who do not? Do trustworthy people prosper more than untrustworthy ones? We first pose these questions in a search model where individuals face repeated choices between trusting (initiating an investment transaction) and not trusting, and between being trustworthy (not stealing the investment) and cheating. We then derive predictions for the relationship between observed individual behavior, aggregate attitudes, and individual prosperity. Finally, we evaluate these predictions empirically using household-level data for eighteen (mostly developed) countries from the World Values Survey. We find that, on average, a trusting attitude has a positive impact on income, while trustworthiness has a negative impact on income. In addition, we find evidence of complementarity between these two attitudes and the aggregate levels of the complementary attitudes. Most strikingly, the payoff to being trustworthy depends positively on the aggregate amount of trust in a given country.

A different look at Lenin’s legacy: Social capital and risk taking in the Two Germanies

“…Our empirical strategy widely follows Alesina and Fuchs-Schündeln (2007) who analyze individuals' policy preferences such as attitudes towards income redistribution or pro-state provision of services that could as well be provided by private forces. In the context of German uni…cation, Rainer and Siedler (2009) is the …rst study to investigate trust which has been shown to impact on a variety of economic outcomes (Knack and Keefer 1997, Alesina and La Ferrara 2002, Slemrod and Katuscak 2005. Their …ndings suggest that some ten years after uni…ca-tion, East Germans still have the same levels of social distrust as shortly after the fall of the wall.…”

Trustworthiness and Economic Performance

“…Each question in the series is then followed by just one "quality", e.g independence, thrift, etc. Those who chose "tolerance and respect for others" we 10 We considered several other questions -a question on honesty (A031) and a question on lying (F127) used by Slemrod and Katuscák (2005). A031 was only asked in the 1981 survey and F127 only in the 1990 survey.…”

Does democracy foster trust?

“…Taking such political economy factors seriously in understanding how trust evolves or disintegrates is important for several reasons. First, there is now widespread evidence that social trust can have a positive impact on a wide range of macroeconomic and microeconomic outcomes (Knack and Keefer 1997, Knack and Zak 2001, Slemrod and Katuscak 2005. Second, trust in the core institutions of a political system matters for whether people become politically active, whether they favor policy reforms, and whether they are willing to comply with binding decisions of policy makers (Levi and Stoker 2000).…”